Subject: Great letter and comments and suggestions in regards to the proposed Regulation SHO and Naked Short Selling "Counterfeiting"

We thank you for this opportunity to offer comments
and suggestions in regards to the proposed Regulation
SHO. We are of the opinion that the rampant "naked
short selling" of stocks and the associated epidemic
of failures of "good delivery" and loans made to mask
"failures to deliver" that we are currently
experiencing, threatens the very core and integrity of
our financial system. These problems need to be dealt
with IMMEDIATELY, even before the implementation of
the proposed Regulation SHO.

As each day goes by, the investment losses pile up,
another handful of micro cap companies go bankrupt,
and the inevitable loss in investor confidence once
this little "industry within an industry" is exposed
increases. This is occurring at a time when the system
can ill-afford any new scandals involving perceived
regulatory apathy. Our comments will first address
some specific suggestions and then some
generalizations based on 21 years of research on the
phenomenon known as "naked short selling."

Throughout the process of designing these new rules,
we ask that you keep one fact at the forefront of your
mind. That being that the Depository Trust and
Clearing Corporation ("DTCC") is aggressively driving
towards STP or "straight through processing." This
means that the trade date will equal the settlement
date, i.e., settlement date will be referred to as
T+0. This single event will increase the levels of
naked short selling abuses we currently see many
many-fold as "failed deliveries" will be the norm and
not the exception and abusive and intentional failed
deliveries will be camouflaged.

Therefore, whatever rules you implement now will be
severely diluted should STP become a reality. We
noticed this trend back when settlement date changed
from T+5 to T+3 several years ago. The DTCC's
never-ending quest for clearing and settling trades at
light speed, no matter what the effect on the
INTEGRITY of the process, needs to be addressed.

One caveat, in this letter we will use the term "naked
short selling" as is currently used in the vernacular.
The term "naked short selling", for the record, is an
unfortunate misnomer. "Short selling" refers to the
sale of legitimate, borrowed "shares/packages of
rights", in the hopes of repurchasing them at a later
time for a lesser amount. The borrowed
"shares/packages of rights" are then returned to the
lender. Shares are, of course, a "package of rights"
attached to a specific public corporation. They
include the right to vote the percentage of equity
ownership purchased, the right to dividends that don`t
dilute the percentage of equity ownership, to residual
rights in the case of dissolution, to preeminent
rights, the right to sell at a time of one's choosing,
the right to become the nominal/legal owner by taking
delivery of a certificate with one's name on it, the
right to use this proof of ownership to collateralize
business or personal loans, etc.

The term "naked short selling" would thus refer to the
selling of legitimate "shares/packages of rights",
without first borrowing them. On Wall Street, the
reference to "naked short selling" is of a much more
heinous nature than the name implies. That which is
being sold by unethical market makers, clearing firms,
and co-conspirators and purchased by investors is not
a legitimate "share/package of rights".

Legitimacy is dictated by the existence of a
corresponding certificated share bearing the signature
of the Corporate Treasurer and Transfer Agent,
somewhere in the system. The entity being sold and
purchased in "naked short selling" does not exist. A
public corporation has a finite number of "rights" to
vote, receive dividends, etc. The entities being
bought and sold are above and beyond this finite
number of "shares/package of rights".

In "legal" short selling there are intrinsic checks
and balances in existence to prevent massive fraud. By
far the most important being that the number of shares
that can LEGALLY be sold short is governed by the
number of shares that can be LEGALLY borrowed. This
would be comprised of the issuer's "float" less the
number of "fully paid for shares", excess margin
securities, and shares held in qualified retirement
plans subject to the 1974 ERISA Act. Thankfully, the
thinly traded securities of the OTCBB and Pink Sheets,
which are the most susceptible to short selling
frauds, do not have a high percentage of shares that
are "lendable" since most of these shares are
non-marginable. In naked short selling, this, the most
important intrinsic governing mechanism is gone by the
wayside. This fact, in conjunction with the DTCC's
allowance of a "real" share to be loaned out in more
than one direction at any given time, accounts for the
reason we find "open positions" or accumulated fails
to deliver or loans made to mask these fails in excess
of 300 and 400% during the discovery phase of naked
short selling civil cases.

What we would hope that the SEC could appreciate is
the element of TRUST that investors have in the system
and in the regulators that in turn have a fiduciary
duty of TRUST to these investors. Na´ve investors
assume that the SEC has created a "level playing
field" on these trading venues. They assume that the
regulators are professionals, that they know every
dirty trick in the fraudsters' playbook, and could
recognize a fraud while it is being perpetrated. These
investors really think that they are buying "real"
shares from a "real" shareholder, perhaps across the
country, with a market maker acting as the middleman.
They see no need to ask for the delivery of their
certificated shares to prevent fraud. In fact, corrupt
broker/dealers will attempt to talk their clients out
of demanding certificates and/or make it cost
prohibitive to do so. We got a kick out a brokerage
firm's comment letter during the last "short sales"
comment period back in 1999. In it this firm urged
fellow DTCC participants to just hike up their fees
for certificate delivery to thwart investors demanding
proof of their purchase. This firm cited a 70%
decrease in demands for delivery after doing this.
Investors also do not have a clue that their own
broker/dealer, who owes the investor a fiduciary duty
of care after being paid a commission as an agent, is
"renting" out their purchased shares to the mortal
enemy of the client's investment. The investor has
been "sold out" by his own brokerage firm. There isn't
even any sharing of the rental income from the loan.

The fiduciary duty of care owed to the client/investor
seems to disappear as the shares purchased head into
the DTCC where they are held in an anonymous "pooled"
format. Because of this anonymity, Shareholder "Sam"
would have a tough time making a case against his
brokerage firm for breach of this duty and being "sold
out" in exchange for a rental check. Where did the
fiduciary duty disappear to as these "shares"/
nonexistent entities entered into the DTCC system? Can
you find it with a GPS? The na´ve investor does not
realize that there would be consequences for his
brokerage firm if it were to "break ranks" and do the
right thing. The Wall Street community and various
co-conspirators have made this issue into a "Wall
Street versus investors" battle.

We would warn the SEC not to expect too many comment
letters this time around. These investors have had it.
Back in 1999, the vast majority of 2700 commenters
begged you to throw them a lifeline in regards to this
naked short selling issue. Here we are over 4 years
later commenting on Regulation SHO. The only bets
being placed now have to deal with how long Wall
Street can stall its implementation. Please act
quickly, this country's financial system is much too
important to toy with. What advances have been made
over this past 1,500 day period subsequent to one of
the most massive pleas for help in the history of the
SEC. What is really troublesome to the legal community
is the fact that the SEC already has in its possession
the power and the mandate to address these naked
short-selling problems. The 1934 Securities Exchange
Act gave it to them.

The crime being committed is actually a hybrid between
counterfeiting and a 10b-5 securities fraud. In our
opinion, the SEC does not have the power or mandate to
allow "would be" bona fide market makers to sell
nonexistent "packages of rights" attached to a
specific public corporation in exchange for a U.S.
citizen's hard-earned cash.

The concept is preposterous even if the
"pseudo-shares" were to be "bought in" within 24
hours. The current system not only allows this heinous
act, but it also allows these nonexistent entities to
remain within the system for years at a time. The
allowance of a "sell" without a corresponding "borrow"
is a recipe for disaster that any fraudster could-and
many of them do-make billions of dollars off of. It is
"the borrow" or MONITORED "affirmative determination"
in writing of the "borrowability" of legitimate
"shares/packages of rights" that allows the process to
have any shred of integrity.

This whole issue is not a matter of "good clean fun
between the shorts and the longs". This is organized
crime permitted and condoned by na´ve regulators not
recognizing the absurdity of letting Wall Street
participants dealing with trillions of dollars of
investors' property to sell things that simply don't
exist. The non-applicability of Rule 3370
necessitating the "borrow" or "affirmative
determination in writing of the "borrowability" of
legitimate shares/packages of rights" to the OTC: BB
and Pink Sheets markets was a counterfeiter's dream.
Does the Real Estate Commission condone the sale of
"oceanfront property" in Arizona by "bona fide"
realtors to "inject liquidity" into the Real Estate
market when buyers outnumber sellers of real estate?
What is the difference, private property is private
property and State Securities Statutes deem that an
equity ownership position in a public company is a
form of private property?

We are convinced that the various State Securities
regulators, if they understood the concept of naked
short selling, would have had an absolute fit if they
knew that the SEC was even considering allowing market
makers to sell entities that don't exist and thereby
dilute the equity ownership of investors in their
states, or to fraudulently distribute counterfeit
shares of public companies domiciled in their states.
This only illustrates how little people know about
"naked short selling" and the role of the DTCC.

Please do the investing public a favor. When reading
through comments on Regulation SHO or discussing this
matter with other regulators, please mentally
substitute the phrase, "the selling of nonexistent
entities by participants of the DTCC to U.S. investors
to whom they owe a fiduciary duty, in return for their
cash" in the place of "naked short selling". Keep in
mind that it is the SEMANTICS involved in the term
"naked short selling" that somewhat legitimizes this
heinous concept because legitimate "short selling"
does indeed have its place in a healthy market.

Our greatest concerns revolve around "naked short
selling" and Rule 203, as well as Rule 201.

In regards to Rule 203(b):

1) In 1(i) we would ask that you strictly define what
a "bona fide arrangement to borrow the security"
entails. Does this refer to the affirmative
determination rules? The current affirmative
determination rules are riddled with loopholes. They
only require a broker/dealer to use its best knowledge
and judgment to determine the availability of shares
for loan and to notate it in writing. Where is the
contract? The absence of the security on a non-audited
"hard to borrow" list as proof of "borrowability" is a
total joke.

2) In 1(ii) "Had reasonable grounds to believe that it
could borrow the security" is unbelievably subjective.
What are reasonable grounds, "easy to borrow lists"?
When writing these rules, we would suggest that you
"PRETEND" that the naked short selling of micro cap
securities represents perhaps the single biggest fraud
ever perpetrated on U.S. investors and the integrity
of the market is at stake and that the people that
have made literally billions of dollars committing
this fraud are looking for any potential loophole that
will allow them to carry on the commission of this
fraud ad infinitum. Plug all loopholes! Why would the
SEC even consider allowing these crimes to continue?

3) In (2) we would suggest adding "or any affiliate,
client or associate thereof" after the "purposes of
the broker or dealer".

4) In regards to the last line of (2) "or is
disproportionate to the usual market making patterns
or practices of the b/d in that security", this
invites a crooked market maker ("MM") that naked short
sells into every order he sees to continue to do that
because that IS his usual MM pattern.

5) In (3) (i) what keeps a crooked MM from just naked
short selling through a different proprietary or
non-proprietary account once he's caught? Please refer
to the Sedona case modus operandi. These people
usually work in collusion with many other
co-conspirators both on and offshore. A MM caught
misbehaving can hand the naked short selling torch to
a "buddy MM" for 90 days and return the favor should
the "buddy MM" get caught. The emphasis has to be on
shutting down the abusive naked short selling of the
abusive BROKERAGE FIRMS, NOT JUST THE OFFENDING
ACCOUNTS. IF YOU ACTUALLY PUNISH THE BROKERS, THESE
CRIMES WILL BECOME LESS PERVASIVE

6) In (3) (ii) (A) threatening to report the culprit
to the NASD has no deterrent effect whatsoever.
Investors are tired of watching perpetrators being
fined $20,000 for stealing $5 million. Signing off on
an AWC (Acceptance, waiver, consent) stating that, "I
didn't do it and I won't do it again" just doesn't cut
it anymore. That's how the SEC allowed the U.S.
financial markets to get into this mess. The NASD's
naivetÚ-or complicity-in naked short selling matters
is summarized in "endnote" #42 of the document we are
commenting on wherein they state, "The Association
(NASD) does not anticipate that a firm could properly
take advantage of its market maker exemption to
effectuate such speculative or investment short
selling decision." Perish the thought, can you in your
wildest dreams imagine an OTC market maker taking
advantage of his and only his "right" to naked short
sell into buy orders when "theoretically" acting as a
bona fide market maker?

7) In 3 (ii) (B) withholding the proceeds of the crime
for 90 days is like handing a bank robber the proceeds
of the heist after a 90 day waiting period. This is a
crime being committed. The motive is greed. The shares
that were sold for real money don't exist, they never
did. There was no intent to ever cover this naked
short position. The "intent to defraud" is typically
present right from the "get go" as there is usually
not an imbalance of buy orders over sell orders at the
higher trading levels of these "bear raid" victims.
These victim companies are "targeted" because DTCC
participants, in their infinite wisdom, feel that
their market cap is a bit "rich" or that the prey is
weak. These fraudsters are predatory. This intent is
further demonstrated as the market makers don't
reappear on the bid at lower levels to repurchase the
shares they just sold, as a bona fide market maker
would. Unethical market makers that sold millions of
shares at $5 did not try to cover this naked short
position at $4.80 like a "bona fide" market maker
would have. Nor did they attempt to cover at $3.80 or
$2.80 either. They're not even bidding at the current
price level of 2-cents for that matter. The only
intent was and is the bankruptcy of the victim
company. Naive micro cap investors have been getting
their pockets picked systematically by Wall Street
"professionals" for decades. FRAUDSTERS ARE SELLING
ENTITIES THAT DON'T EXIST AND NAIVE INVESTORS ARE
SPENDING BILLIONS OF DOLLARS SCOOPING UP THESE
PERCEIVED BARGAINS TRADING AT TINY PERCENTAGES OF BOOK
VALUE.

8) A lot of investors have 10 or 15% of their
portfolio in micro cap high flyers on the OTC: BB and
Pink Sheets. They want to discover their own future
"Nike" while it's trading at 10-cents. Why would U.S.
taxpayers that happen to invest in these micro cap
companies be afforded any less protection from market
maker induced fraud than those that invest in
Microsoft and General Motors? U.S. investors love to
gamble. It is these thinly traded securities that are
the most easily manipulated by predatory MMs and their
associates in Canada as well as in offshore hedge
funds. One would think that they would need MORE
protection than the investors in Microsoft if
anything. Solid development stage companies
"incubating" on the OTC: BB and Pink Sheets are
extremely fragile and very susceptible to predatory
attacks. Unethical market makers and their
co-conspirators have come to the conclusion that
billions of dollars can be made while shooting these
"fish in a barrel". The sobering reality is that these
companies are a lot like sandcastles and naked short
selling predators are a lot like beach bullies and we
all know that it's a thousand times easier to destroy
a sandcastle or a young public corporation than it is
to build one.

9) We believe that the naked short selling problem is
much more systemic than you at the SEC give it credit
for. It is the collusion and complicity amongst MMs
that needs to be addressed. Watch Level 2 trading and
see how they operate as "packs" or "herds" in heavily
naked short sold stocks. The mere act of sending these
naked short selling accounts to naked short selling
"jail" for 90 days will just result in handing the
naked short selling baton to a different account or to
a buddy MM. The offshore hedge funds would obviously
just set up numerous accounts at many different MMs
and b/ds and rotate naked short selling orders through
those accounts not currently in naked short selling
jail. Perhaps severe penalties, criminal and civil,
should be administered to repeat offenders while any
of their accounts are in "jail". The text of the
explanation didn't address it, but we assume that
these illegal naked short positions in excess of the
Rule 11830 parameters will be bought in as the account
goes off to 90-day jail. If not, why not? Why would
the SEC not require the settlement of all securities
transactions in U.S. markets?

10) We believe that a prospective investor
contemplating the purchase of a micro cap security on
the OTC: BB or Pink Sheets has the right to see what
the outstanding failures to deliver and loans masking
these "fails" total up to. These are collectively
referred to as "open positions". Let's not go back to
the "caveat emptor" days. If there are 100 million
legitimate shares issued in the stock he or she is
contemplating buying, and 300 million "failures to
deliver" or "loans made to cover a failed delivery"
within the system, the prospective investor has the
right to know that his purchase of 1 million shares
will NOT give him 1% of the voting power of the
company, 1% of any dividends distributed, or 1% of any
residual equity rights in the case of the dissolution
of the company. The SEC has the DUTY to make this
crime-preventive information available to the
prospective buyer. Otherwise, this investor will have
walked into an ambush that the regulators were well
aware of because on the day after his purchase there
are 400 million shares that can be sold at any instant
in time should bad news arrive on the doorstep. You at
the SEC are very well aware of the ambush because you
have visibility of these "fails" and "loans". Please
give us a "heads up"! Just as the SEC and the public
have the right to know of any additional shares being
registered by an issuer, the micro cap investors have
the right to know how many "counterfeit electronic
book entries" are on the books at the DTCC and
clearing agencies. In other words, how many shares has
the DTCC illegally "registered" unbeknownst to the
corporation and its shareholders.

This is all in the spirit of Regulation Full
Disclosure or Reg. FD. It is a two way street. It is
inherently wrong for two or more shareholders to
receive monthly brokerage statements INDICATING THE
OWNERSHIP OF THE SAME PARCEL OF "SHARES/PACKAGES OF
RIGHTS". We would advise the SEC to not get "faked
out" on the concept of "good delivery". "Good
delivery" is an instantaneous phenomenon at the DTCC.
Fraudsters can borrow the same shares involved in
effecting yesterday's "good delivery" of shares to
create "good delivery" of today's trade. This allows
access of these nonexistent entities into the DTCC via
the creation of "counterfeit electronic book entries"
or "CEBES".

Once into the DTCC all shares, real and fake, are
conveniently held in an anonymous pooled format which
camouflages the existence of the fake shares. The real
and fake shares then play a gigantic game of "musical
chairs" at the DTCC, circling around chairs the number
of which match the number of "real" shares only. But
since the music never stops at the DTCC, i.e., no
periodic aging and quantification analyses of failed
deliveries and loans made to mask failed deliveries,
the fraud goes on undetected and the shareholders
never do figure out if they bought real or fake
shares.

This revelation can't be made until the victimized
company convinces its shareholders to remove their
shares from "street form" which is a difficult task
due to the "handiness" of keeping shares at the DTCC.
Should this depletion of real shares successfully
occur, those demanding and receiving their
certificated shares first are by default deemed to
have bought "real" shares and those that did not
receive their certificated shares are deemed to have
bought "counterfeit" shares. But since 95% of
shareholders hold their shares at the DTCC in "street
form", the fraudsters can usually dodge this bullet.

All the SEC has to do is to look at the books of a b/d
to see how many "shares/packages of rights" of a given
corporation they "imply" possession of to their
clients via monthly brokerage statements and compare
this number to the number of "shares/packages of
rights" actually held in their DTCC account. If you
would like we will give you as many companies to
examine in this manner as you can handle. You might
start with Pinnacle Business Management (PCBM). The
difference between these two numbers signifies the
arithmetical sum of current "failures to receive" at
the DTCC or loans made to the NSCC to cover up other
"failed deliveries" of that same security at the DTCC.
This is not rocket science. Ask yourselves just why
all of those "victim" companies finally got so fed up
that they tried to make a mass exodus from the DTCC.
This has never occurred in the history of the markets.
Victimized companies and their shareholders have had
enough.

11) The bogus electronic book entries at the DTCC
resulting from naked short selling and the resultant
failed delivers do NOT represent what the public
thinks of as "shares". "Shares" represent a "package
of rights" attached to a public company. This does not
include the 300 million bogus or counterfeit shares in
the system in the previous example. "Shares" also
include the right to any dividends distributed without
causing any dilution to the percentage of equity
ownership of "real" shares held.

In the above example, if that U.S. corporation did a
100% dividend share distribution to its shareholders
and assuming all of the shares were held at the DTCC,
then the Transfer Agent would send a "real"
certificate made out to Cede and Co. for 100 million
shares. Why then would the next monthly statements of
the shareholders collectively total up to an extra 400
million shares theoretically having been delivered by
the TA to the DTCC? The trouble is that the fraudulent
behavior associated with the naked short selling of
shares by Wall Street "professionals" and their
co-conspirators in the clearing agencies and the
Lending Departments, begets the necessity to commit
cover up frauds every time a shareholder tries to
exercise one of the missing "rights" that are only
attached to "real" shares. These bogus electronic
entries in the clearing agencies are not "shares" and
do not have the rights attached to that issuer. THE
ENTITIES BEING SOLD DO NOT EXIST.

One of the many rights attached to share ownership is
the right to take delivery of the proof of ownership
of the shares, the share certificate, thus allowing
the purchaser to become the "nominal" or "legal"
owner. This registered share certificate might then be
used to collateralize personal or business loans as
the creditor sees fit. It also allows a shareholder to
become a "shareholder of record" giving him easy
access to press releases, proxy solicitations, and
dividend distributions.

Regulators that can't make the distinction between
"shares" as a package of rights attached to a public
company and "counterfeit electronic book entries
hosted by the DTCC", can't effectively regulate. The
allowing for the clearing and settlement of trades
involving nonexistent entities at the DTCC via the
borrowing of "shares" in order to effect good delivery
represents the "counterfeiting phase".

The nonexistent entity sold by market makers
masquerading as bona fide market makers becomes a
"counterfeit" book entry every time this is done.
These are counterfeit "packages of rights". "Naked
short selling" is not a form of "short selling", it is
a form of fraud. Shares are a lot more than a blip on
a computer screen. The DTCC and its 11,000
broker/dealers have no right to create counterfeit
voting rights, dividend rights, preemptive rights,
equity ownership rights, residual ownership rights,
delivery rights, etc. attached to a company.

This reality is borne out by witnessing the cover up
frauds that need to be perpetrated in order to mask
the fact that these entities are indeed counterfeit.
Again the "intent to defraud" is quite obvious as you
study the mechanisms of the "cover up" frauds being
committed to hide the initial fraud. The above-cited
company has 100 million legitimate voting rights,
PERIOD! The Transfer Agent, in the 100% share dividend
distribution cited above, will mail a certificate for
100 million new and legitimate "shares" to Cede and
Co. and not one more, yet the monthly brokerage
summaries for the shareholders of the issuer will now
total not the old 100million real and 300 million
counterfeit "pseudo-shares" but now 200 million real
and 600 million counterfeit "pseudo-shares".

In this example, the dividend distribution resulted in
the DTCC creating and distributing ANOTHER 300 million
non-registered "counterfeit electronic book entries",
again out of thin air, without an exemption from
registration in sight as mandated by the '33 Act. Why
did Wall Street do this? They had to; otherwise they
would have had to tell the owners of these 300 million
nonexistent entities that they didn't get their
dividend shares from their earlier purchase that they
paid good money for because they bought counterfeit
"pseudo-shares" that don`t really exist and that their
money is sitting either in the pocket of the seller of
these nonexistent entities or in their "C" sub account
at the DTCC until the share price gets further
decimated from this activity and this now "excess"
margin capital trickles to the clearing firm of the
naked short seller.

When a shareholder owning one of those 600 million
counterfeit shares at the DTCC calls his broker and
puts in a sell order, will that broker say, "No you
can't sell those, they are counterfeit, we never got
good delivery of your purchase?" Of course not. The
broker has to sell those counterfeit shares to some
other naive sap. Have you ever heard of an investor
who got a proxy solicitation statement that indicated
that he or she can't vote his or her shares because
they are counterfeit and there never were any voting
rights attached? Of course not, any fraud necessitates
a cover up fraud once the original fraud is in danger
of being discovered.

Why else did Medinah Minerals, Inc. tally up 168
million votes at a recent Annual General Meeting when
only 111 million existed? Why can't the dozens and
dozens of NUTEK shareholders that have been pounding
the table for their share delivery for years not get
their shares EVEN AFTER FILING SUIT TO DEMAND
DELIVERY? WHY WASN'T WALL STREET THE LEAST BIT
INTIMIDATED BY 32 SHAREHOLDERS FILING SUIT FOR
DELIVERY OF THEIR PURCHASES? WHAT IS GOING ON HERE?
WHY WOULD THE DEFENDANT BROKER/DEALERS PAY HUGE LEGAL
BILLS INSTEAD OF JUST BUYING IN THE MISSING SHARES AND
GIVING THEIR OWN CLIENTS THEIR POSSESSION? THIS NUTEK
SITUATION REPRESENTS A BLACK EYE THAT THIS COUNTRY'S
FINANCIAL SYSTEM DOES NOT NEED. Perhaps Regulation SHO
should incorporate a rule that if a shareholder's
request for the delivery of his certificate has not
reached the Transfer Agent's office within 3 weeks
time then an immediate cash buy-in must be effected.

12) The invisibility of trading on the OTC: BB and
Pink Sheets needs to be addressed. Even Level 2
visibility tells an investor absolutely zero about
which market maker is buying and which is selling.
What's the big secret? If a certain MM was selling 50
million shares of an issuer every month and buying
none, month after month, this would be a nice thing to
know. Don't you agree? If the SEC is strapped for cash
and manpower then open up the visibility to investors
and place a deputy's badge on them to protect their
possessions. They are aptly incentivised to do a good
job. The monthly disclosure of aggregate short
positions and fails to deliver is critical to ending
these abuses. There is no better disinfectant than the
light of day. OF COURSE THIS WON'T HELP WITH
FRAUDULENT SHORT SALES INTENTIONALLY MISLABELED AS
LONG SALES.

13) I would hope that the SEC would treat naked short
selling as a totally out of control systemic fraud
that, if remains un-addressed, WILL cause cataclysmic
damage to the integrity of our markets. We are of the
opinion that the naked short selling fraud totally
dwarfs the current mutual fund fraud even though there
are currently $7 trillion currently sitting in these
vehicles. Look at the egregious nature of selling
entities that don't exist and bankrupting U.S.
companies as well as investors, versus market timing
issues or late trading issues.

In two recent naked short selling cases that resulted
in jury awards to two corporations that were victims
of naked short selling abuses, the debt collectors
each located many, many billions of dollars of assets
belonging to each of those two INDIVIDUAL naked short
sellers. THIS FRAUD IS ENORMOUS. The sense of
emergency must be understood. Do not wait for
Regulation SHO to become law to address these
problems. Investors are buying tens of millions of
dollars of micro cap securities-at least, they are
trying to-each and every day. They are walking into an
ambush each and every day.

Those investors plopping down big bucks tomorrow have
a right to know if they're walking into an ambush. We
need regulatory "cops" out there practicing crime
prevention. If they think they are buying a 1% equity
and voting position in an issuer and you, through your
perusal of failed deliveries, KNOW AS AN IRREFUTABLE
FACT that this is way off base, then PLEASE warn these
investors via access to the truth. You don't need
Regulation SHO to do this, the Securities Exchange Act
of 1934 gave you BOTH THE POWER AND THE MANDATE to do
this. All you have to do is look at the failed
deliveries that have been covered up by loans.

Keep in mind that NASD Rule 11830 serves as a
benchmark stating that failed deliveries above 10,000
shares and one half of 1% of the issued number of
shares represents a level that needs addressing via a
buy-in. While studying the levels of the failed
deliveries and "cover-up loans", also notice the ages
thereof. Addendum "C" to the rules and regulations of
the NSCC, set up a "Lending Pool" of shares in street
form to cover failed deliveries FOR ONLY A DAY OR TWO
because there are indeed legitimate reasons why
delivery might be held up for a day or two. A year or
two would seem to be a little excessive. Be aware also
of the constant "kiting" of these "open positions"
amongst the perpetrators of this fraud and their
co-conspirators made in an effort to "freshen up" the
ages of these "fails" and "loans".

It really doesn't matter whether the actual initiator
of the naked short sell order was a predatory
financier selling death spirals, an offshore
corporation set up in a tax haven with strict banking
secrecy laws, an unregulated hedge fund, an Internet
naked short selling "guru" or one of his disciples, a
Canadian broker/dealer, etc. All of these orders go
through U.S. market makers, U.S. clearing firms, and
the DTCC.

14) Do we need firm rules to address which shareholder
is allowed to vote the shares which each of two
individuals purchased and one of their firms "rented"
them out to cover a failed delivery of the other?

That's what it would come down to if shares are
allowed to be sold without a borrow. This "joint"
ownership of the same parcel of securities that
results from naked short selling is a joke. Does
anybody for a moment believe that for every loan made
to mask a failed delivery of naked short sold shares a
letter goes out to the shareholder whose shares were
loaned out informing him that he can no longer receive
dividends or vote at meetings? Does anybody believe
that the new purchaser got a note appended to his
purchase confirmation that he's not allowed to receive
any of the rights attached to the ownership of shares
in this specific corporation? No, because at the DTCC
both the "real" shares and "counterfeit electronic
book entries" are CONVENIENTLY held in an anonymous
pooled format where they are indistinguishable from
one another. The best victim a fraudster could hope
for is not only one that does not recognize that he
has been defrauded but also one that couldn't prove
that he was a victim even if he was aware of the
fraud. Blind anonymous pools are extremely clever.

If somebody doesn't get to vote their shares, then
tell them that before you loan out or borrow their
shares. Is it perhaps appropriate to share in the
rental income of these shares? The DTCC has no right
to create voting rights in a public company. Rules
addressing which shareholder in the case above would
get a share dividend also would have to be addressed.

In the case of a dividend distribution, the DTCC has
no right to create new "registered" shares of an
issuer out of thin air and lie to shareholders
implying that these were sent by the TA. The fact that
all of these real and fake shares can be sold at any
instant in time represents a phenomenon known as
dilution. Dilution kills companies. The resultant
forcing of these issuers to raise money at
artificially low levels exacerbates this dilution.
Almost all "development stage" issuers have to raise
money to pay their monthly "burn rate". The combined
effects of immense "open positions" on the books at
the DTCC, plus further naked shorting day after day,
in addition to the raising of necessary funds at these
artificially low levels just to pay the bills, cause a
downward spiral in the share price of these companies
and their eventual bankruptcy. This has to be
recognized by the SEC and stopped immediately to
minimize the damages accruing on a daily basis.

15) In regards to Proposed Rule 201, the trading
venues of the Small Cap NASDAQ, the OTC: BB, and the
Pink Sheets need the protection provided by the
Proposed Bid Test. These trading venues do have
"effective transaction reporting plans" and
information related to these trades is made available
on a real time basis. They also have an easily
distinguished best consolidated bid. The OTCBB and
Pink Sheets trading venues have matured immensely in
the last few years. There are plenty of real time
market quotation vendors involved.

In IV b 2 you mention that "We are not proposing at
this time to extend the uniform bid test to securities
not currently covered by a short sale price test in
part because these markets have not been subject to
the rule in the past. More significantly, we believe
that the proposed locate and deliver requirements may
address many of the concerns regarding abusive short
selling in thinly-capitalized securities trading over
the counter". The reasoning used in the first sentence
is exactly why we're in the mess we are today. No
offense intended, but what kind of reasoning is "We're
not going to address the problem of "bid banging" now
because nobody addressed it in the past"? And also
don't address "many" of the loopholes, address them
all, especially while being cognizant of the "Straight
Through Processing" policies were heading towards.

All efforts made now will be severely diluted if STP
becomes a reality and we hope that you recognize the
perils of a policy like that. Aggressive changes are
needed now because this naked short selling and
"failed delivery masking" scandal could undermine what
little confidence investors still have in the system.
Without "bid banging" protection, abusive MMs will
hammer away at the bid with a big sell order of
nonexistent shares and then fail delivery and head off
to the 90 day jail term. But the damage will have
already been done before the jail sentence has been
carried out. The visible stop loss orders will have
already been "tripped" and the impressionable
shareholders will have already done their panic
selling.

Other co-conspiring MMs as well as other proprietary
and non-proprietary accounts at the same firm will
then pick up the slack and nothing will have changed.
Abusive MMs love to spot a "stop loss sell order" down
below the bid, sell a bunch of nonexistent shares
knocking out underlying bids thereby "tripping" these
stop loss sell orders. They then watch the PPS implode
from long shareholders sensing a catastrophic sell off
in process and selling out their long positions. This
is a very common phenomenon known as market makers
"shaking the tree" and is extremely easy to perpetrate
because of the enhanced visibility these Wall Street
"professionals" have and they love to use this
leverage over the people to whom they owe a fiduciary
duty.

16) The proposed text of Rule 203 does not include the
inclusion of Rule 11830 as proposed. Was that an
oversight or do you plan on amending 11830 separately?

17) We do agree wholeheartedly with Lamont and
Thayler's work cited in endnote #21 in regards to
short selling's two greatest benefits being market
liquidity and pricing efficiency. Market liquidity has
two components. These are buy side liquidity and sell
side liquidity. The problem with relating this to
naked short selling is the disconnect involved because
in naked short selling frauds market liquidity becomes
immense only on the buy side as pricing efficiency
goes out the window. Market liquidity should aid both
buyers and sellers of a stock, not just the buyers.
Thus two of the three benefits of "short selling" do
not apply to naked short selling and the one parameter
that does apply, buy side liquidity, actually works
against the investor because it just serves to draw
more victims into the trap. The same type of
disconnect has occurred at the DTCC which is so
focused on clearing trades at light speed at the same
time that the INTEGRITY of the process has fallen out
of bed.

As the DTCC is now hell-bent on Straight Through
Processing wherein the trade date IS the settlement
date, please design the new rules with that in mind,
as the integrity of the process will go right out the
window if you don't. Our advice is to slow down and do
it right.

18) In endnote #50 you state that, "The NSCC currently
tracks this information on fails to deliver and
provides it to the NASD for purposes of administering
NASD Rule 11830". (The mandated buy-in rule) How can
neither the NSCC nor the NASD, two SROs, being fully
aware of these "fails" and "masked fails", not warn
naive investors that they are walking into an ambush
when they buy shares of "xyz" when there is a 200%
naked short position at the NSCC? At what level of
failed deliveries or cover-up loans do the alarms and
red lights go off? Are there alarms and red lights in
existence for somebody to monitor? Are there employees
of the DTCC and or broker-dealer's Compliance Offices
commissioned to monitor the age and quantities of
failed deliveries? Shouldn't "good delivery" be more
than an instantaneous blip on a computer screen that
can get "undone" five minutes later?

The criminal activity being disguised as "shareholder
advocacy" needs to be recognized for what it really
is. Individuals hiding behind the anonymity provided
by the Internet and First Amendment rights to free
speech are acting as co-conspirators in this fraud.
Only bona fide MMs can legally sell shares without
borrowing and this applies to only when they are
acting in the capacity of a bona fide MM. Bona fide
MMs just don't hire co-conspirators to "bash" the
stocks that they are naked short, racketeers do this.
They don't "rent out" the lack of necessity to borrow
before selling shares, as provided by Rule 3370, with
those they are in collusion with or acting in
complicity with.

19) Please note the wording of Addendum C to the rules
and regulations of the NSCC as it pertains to when
these counterfeit electronic book entries should be
cleared up. We're trying to get a handle on what "when
the amount of securities within the system at the DTCC
is above and beyond what is needed for the normal
clearing and settlement functions" really means. Just
where would these mystery securities arrive from? The
"D" sub accounts housing these "counterfeit shares"
just keep getting fatter and more numerous through
time. Your suggested amendment and invocation of Rule
11830 is very appropriate. Addendum C undermines all
of the various delivery rules contained in the '34
Exchange Act. Be cognizant of the fact that a "loan"
on the books of the DTCC is no more than a "failed
delivery" in disguise. They both leave an "open
position" that needs addressing.

20) We would suggest that delivery must be made unless
it causes "undue inconvenience" be either tightly
defined or changed. We expect that it might turn out
to be "unduly inconvenient" for a market maker to use
some of the proceeds of selling nonexistent shares to
buy those shares back, don't you think? But does that
give them the right to refuse to deliver?

21) People should realize that your proposed rules
will also help thwart "Pump and dumps" by crooked
insiders as the shares they are typically dumping are
non-registered and restricted shares that just stay in
the "open position" column until the restriction
periods have passed.

22) We note that endnote #56 has several key errors in
it. The concept that naked short sellers do not
receive the proceeds of their sales until delivery is
made is the second biggest misconception of naked
short selling in existence and couldn't be further
from the truth. Rule 11 at the NSCC says nothing of
the sort indicated in the explanation of Proposed Rule
SHO.

The only thing in the system that offers a slight
check or balance to what these naked short sellers are
doing is the fact that they must collateralize the
loan that was made to mask the failed delivery. Recall
that the critical intrinsic governor of only being
able to short sell shares that can be legally borrowed
has gone by the wayside in the case of naked short
selling. As the constant selling of nonexistent shares
drives the PPS from $5 to a penny, the amount of
collateral needed to guarantee that debt is negligent
at the 1-cent level. The proceeds of the sale of
nonexistent shares at the $4 and $5 level are safely
in the pocket of the fraudsters. That brings us to the
single biggest misconception in the discipline of
naked short selling, that being that the naked short
sellers have to cover. They would be idiots to cover,
all they have to do is to keep the price per share
("PPS") pinned down low and that's incredibly easy
because they really do act like bona fide MMs at
extremely low price levels because there are no real
sellers and plenty of opportunistic buyers, and their
supposed mandate is to provide liquidity by selling
nonexistent shares into this disparity. Unfortunately
for the investors, the further along these frauds
mature, the more "bona fide" the market making
activity actually becomes.

Just look at the various issuers whose share prices
are pinned down at the no bid and $.0001 offer level.
Of course there is an imbalance between too many buy
orders and not enough sell orders. Note in the daily
trading of these issues that no matter what the level
of buying thrown at the $.0001offer, the offer just
won't budge. Crooked insiders do not sell in this
fashion. When they see huge levels of buy orders
entering the market, they scale up their offers to
yield the maximum amount per sale. What's interesting
about these "stalemates" is that if the fraudsters
stop naked short selling and the PPS goes up the least
amount possible, to $.0002, then this will result in
the fraudsters having to "pony up" millions of dollars
in cash to maintain margin requirements.

At these levels one tiny up-tick to $.0002 represents
a 100% gain in the PPS that needs to be
collateralized. Broker/dealers "hosting" naked short
positions at the $.0001 level will demand a very
usurious margin maintenance requirement because of the
tremendous risk involved. Market makers need to be
concerned with net capital deficiency problems in
these cases but on paper they are up perhaps tens of
millions of dollars at the $.0001 level, but if the
company refuses to die and the management and
shareholders figure out the scam, then things can get
dicey.

23) We would hope that you learn about some of the
mechanics of naked short selling through the Sedona
case. Notice how the offshore Panamanian domiciled
corporation working out of Zurich was utilized. Notice
how multiple U.S. broker/dealers were used in series
to obfuscate identities of the sellers. Notice the use
of the market maker's proprietary account allowing
access to the Rule 3370 exemption from borrowing
before the sale of nonexistent entities meant for bona
fide market makers only.

Space underneath this "umbrella of immunity from the
borrow" entrusted to bona fide market makers only, is
being rented out by market makers constantly. The rent
payments are usually in the form of increased order
flow. Notice also the use of ECNs to maintain yet more
anonymity and how the ECN trades were done after the
close. Notice the role of the "Internet bashers" paid
to induce selling and dissuade buying. We would hope
the Department of Justice will eventually get around
to addressing these "shareholder advocates". Notice
how once Rule 11830 was invoked and Sedona went onto
the "restricted" list the immediate transfer of the
naked short selling to Canadian broker/dealers.

Notice in the SEC press release that you mention that,
"Canadian broker/dealers are not members of the NASD
and are not subject to its short sale restrictions".
Notice also the use of "wash sales" and "matched
orders". Keep in mind that Rule 100 of the Canadian
Investment Dealers Association allows naked short
sellers to "hedge" positions in unregistered
convertible securities that don't mature for years to
come by selling nonexistent shares today. How can the
SEC allow offshore brokers with lax rules and
regulations to amalgamate the loopholes in their
system with those in our system? Please closely study
the Thomson Kernaghan bankruptcy and note the
percentage of their business dedicated towards the
naked short selling of U.S. micro cap corporations.
This is not an isolated case as recent cases have
revealed during their discovery phases.

The laxity, or more accurately nonexistence, of
Canadian delivery laws is often referred to as the
"tunnel under the border". They simply sit on
"failures to deliver" for several years. Canadian
broker/dealers enjoy access to the U.S. markets yet
are not forced to follow the rules of the NASD and
SEC. Please take note of the fact that there is no
"affirmative determination" rule or Rule 3370 analogue
in Canada. Not that this makes a whole lot of
difference as the affirmative determination rules in
the U.S. are riddled with loopholes and violations
detected are met with minor hand slaps and a
meaningless letter of censure. Nor is there a Rule
15c3-3 or 11830 analogue in Canada forcing buy-ins of
undelivered shares after 10 days.

Notice also the incestuous ownership relationships of
the offshore hedge funds utilized in these alleged
frauds. The point being that there are thousands of
"Sedonas" out there, some already bankrupt and others
on their deathbeds. Death spiral financings probably
don't even account for 1% of all of the naked short
selling activity out there because of the easily
recognized motive of the financiers. As heinous as the
practice is, the convertible death spiral is a rather
mild version of naked short selling. In the garden
variety naked short selling the fraudsters pay nothing
to the issuers and investors. They just take their
money and run. The only expense they incur is the
collateralization of the naked short position via
margin maintenance requirements and/or net capital
reserve requirements, but since these are tied to the
"marked to market" share price that is in free fall,
it is just looked upon as a cost of doing business and
is minimal. At least predatory financiers cough up
some money although often it is money from the sale of
nonexistent shares of the victim company even before
approaching them to do a financing. How's that for a
slick fraud, take money from the investors in a
company and hand it to the company in exchange for a
floorless convertible security, and then use that
convertible security to destroy the company
completely?

SUGGESTED ADDITIONS/MODIFICATIONS TO REGULATION SHO

1) Modifications to Addendum "C" of the rules and
regulations of the NSCC and the automated "Stock
Borrow Program" therein created is critical. The
greatly perverted intent of this addendum was to allow
trades involving shares that for one or more
legitimate reasons could not be delivered by
settlement date to go ahead and settle since their
arrival was imminent.

Our research indicates that the abuse of the spirit of
this extremely short termed exemption from delivery,
when combined with allowing market makers to LEGALLY
naked short sell into buy orders while theoretically
wearing a "bona fide" MM hat (NASD Rule 3370), has
resulted in synergies that abusive MMs and clearing
firms and their co-conspirators have used to fleece
micro cap investors for decades, thereby undermining
the entire clearing and settlement process in the
United States.

All you have to do is look at the age and magnitude of
the "open positions" which in effect have masked the
sale of nonexistent shares in the 7,500 U.S. public
corporations trading on the OTC: BB and the Pink
Sheets. We'll warn you in advance, this is going to be
a very sobering experience. This is a national scandal
of heretofore unheard of proportion. The nonexistent
shares sold by and through these unethical market
makers and clearing firms enter into the clearing and
settling system at the DTCC via the smokescreen
provided by the "Automated Stock Borrow Program".

Once within the system, the DTCC treats them as
genuine shares and allows these counterfeit electronic
book entries to earn dividends, vote at annual
meetings, exercise preeminent rights, residual rights,
and the right to sell these "entities" to others as if
they were real. The DTCC is thereby distributing
unregistered securities of issuers with no exemption
from registration in sight. This is, of course,
strictly forbidden by the '33 Act. These are the very
crimes you at the SEC have been prosecuting for
decades but in this case at the DTCC the scale of the
crimes being committed are beyond imagination and it
is occurring right under your noses-literally, across
the street from your offices on Wall Street.

DTCC then allows its participants to mislead their
clients on their monthly brokerage statements into
believing that they had bought and received delivery
of "real" shares with all of the rights of share
ownership attached. These are not real "shares" of a
specific public company that have a "package of
rights" attached to them.

Do they always get "good delivery" at the DTCC as
indicated in their recent press releases? Yes, they
TECHNICALLY do get good delivery, but it is of a
borrowed share, but what they don't tell U.S.
investors is that they "un-did" yesterday's or last
week's "good delivery" of a similar trade in order to
make today's trade clear and settle. The initial
purchaser of this "borrowed" share does not have a
clue that his purchase was rented out by his "agent"
who owes a fiduciary duty of care to his client, to
the mortal enemy of his investment and is being used
as an integral part of the plan to bankrupt the
company he invested in. Does the term CONFLICT OF
INTEREST come to mind? So much for holding shares in
"street form" at the DTCC. Why might the DTCC and its
participants be in such a hurry to cut corners thereby
allowing all of these sales of nonexistent trades to
clear and settle? The motive is of a pecuniary nature.
The clearance of this trade allows the DTCC to earn
fees, its participating b/ds to earn commissions, and
its participating MMs to earn "mark-ups".

Further, the DTCC participant that "generously" rented
his client's shares to the abusive market maker is
highly incentivised to do this because he can convert
a stock certificate or electronic book entry gathering
dust into real cash that collateralizes this "loan".
Everybody on Wall Street comes out a big winner as the
investors watch their investments become worthless
from the massive dilution attendant to this process.
The "borrowed" share simply gets credited to the new
buying b/d's account where it can be loaned out from
tomorrow. At any given time, one "real" share can be
loaned out in 43 different directions allowing the
very temporary "good delivery" of 43 different illegal
naked short sales and their clearance and settlement.

If the system had integrity, once loaned out a share
would be sequestered off to the side until the loan is
repaid. This "reverse Ponzi scheme" has been in
existence for decades in a variety of other frauds.
What is particularly disappointing is that the DTCC is
an SRO or self-regulatory organization that wears a
sheriff`s badge. The "cops" are overseeing and
benefiting from all of these misdeeds! Why is the fox
allowed to guard this "hen house" with over $127
trillion in assets? In order for an SRO to work,
everybody in the SRO must be acting in good faith. On
these smaller trading venues there are too many naive
investors who have no idea that by investing in these
corrupted markets-corrupted by the greed of the
securities industry and its SRO's-they are asking for
their pockets to be picked. What is really clever is
to set up this SRO/"police force" of DTCC as a limited
purpose trust company under the banking laws of the
State of New York, with its attendant levels of
immunity. Going after individual "cops/broker-dealers"
that hide behind this badge is a little tricky. Does
New York's banking commission know what DTCC is doing
under their auspices? Just who keeps an eye on the
world's largest financial institution operating as a
Self Regulatory Organization and set up as a "limited
purpose Trust Company under the banking laws of the
State of New York"?

On June 4,2003, you at the SEC stated in a press
release that, "the issues surrounding naked short
selling are not germane to the manner in which the DTC
operates as a depository registered as a clearing
agency. Decisions to engage in such transactions are
made by parties other than DTC. DTC does not allow its
participants to establish short positions resulting
from their failure to deliver securities at
settlement. While the commission appreciates
commenters' concerns about manipulative activity,
those concerns must be addressed by other means".

Do you see now just how badly you at the SEC were
hoodwinked by this statement written by the DTCC? The
statement that the issues surrounding naked short
selling are not GERMANE to how the DTC does business
is obviously sheer lunacy as you surely have learned
by now.

The comment about the DTC not allowing its
participants to establish short positions resulting
from failed deliveries at settlement is very cleverly
worded. What they fail to mention is that the "good
delivery" made was made by means of a borrowed share
and that today's good delivery was made possible by
"undoing" yesterday's good delivery. How long can a
reverse Ponzi scheme like this go on undetected by the
regulators without leading to catastrophic
consequences to the financial system of which it is a
part? All that transpired was that a nonexistent
security was sold and converted into a "counterfeit
electronic book entry" (a CEBE) via the DTCC's
"Automated Stock Borrow Program". This "CEBE" will
exist in an undetected fashion until the SEC pulls the
plug on the DTCC's stereo in this gigantic game of
musical chairs and forces the counterfeit electronic
book entries in excess of the Rule 11830 parameters to
be bought in under a guaranteed delivery process. Are
we going to wait for a couple of thousand more micro
cap corporations to become insolvent? Soon those with
private companies needing access to the public markets
to enhance their growth potential are going to smarten
up and stay private.

The net effect for the victim company and its
shareholders is a tremendous pile-up of counterfeit
shares at the DTCC in the form of bogus electronic
book entries conveniently held in an anonymous pooling
format, which increases the supply of shares that can
be sold at any instant in time. This anonymous pooling
prevents any purchasers of these shares from being
suspicious. This increase in the supply of "shares"
causes a decrease in the price per share as the rules
of supply and demand are still at play, but the supply
variable is grossly exaggerated. It is a brilliantly
constructed and maintained fraud of historic
proportions, and it has been done and is ongoing
literally right under the regulator's nose!

This decrease in the price per share forces the victim
company to raise money to pay its monthly burn rate at
artificially low levels. Keep in mind that most of
these development stage companies are not yet cash
flow positive and pay the bills by selling shares.
This makes them an easy prey to predatory market
makers and their co-conspirators that kill their prey
via massive over dilution. These smaller trading
venues are incubators. The constant raising of cash at
ever lowering levels exacerbates the dilution; and
this, in combination with yet more abusive selling of
nonexistent shares on a daily basis by would be "bona
fide" market makers and their co-conspirators, causes
the share price to spiral downwards until the intended
bankruptcy of the victim company is accomplished and
all of the receipts of the bogus sell orders of
nonexistent shares go to the fraudsters in a tax-free
manner since the cycle of "sell then buy" never needs
to be completed. Trust us when we say that when this
fraud is finally addressed, the big winner will be the
IRS.

2) A "gatekeeper" must be installed to monitor "bona
fide" MM activity. Selling millions of nonexistent
shares of a stock month in and month out while buying
zero, does not constitute "bona fide" MM activity. Nor
does the hiring of paid Internet bashers to dissuade
the buying and induce the selling of a targeted
company's shares. If you don't think this is
happening, let us give you a few company names along
with the main manipulating market makers on each one,
and you can do your own research via your subpoena
powers. We are happy to provide the names of the
bashers as well, to make your lives even easier.

The least expensive way to accomplish this proposed
"gate-keeping" function is to open up the visibility
of the identity of the buying and selling market
makers and let the public be the "gatekeepers". Why
should the identity of the buying and selling firms be
kept so secret? NASD Rule 3370 allows "bona fide"
market makers to sell nonexistent shares into buy
orders when buy orders vastly outnumber sell orders.
Within a day or two, a legitimate "bona fide" MM goes
onto the bid for a like amount and buys back these
shares and pockets the difference known as "the
spread". When we plot MM naked short selling activity
against the PPS of a given issuer's stock, we
typically see that the naked short selling activity
increases as the PPS drops precipitously. Wouldn't a
bona fide MM be on the buy side when sell orders
overwhelm buy orders in an issuer's stock, at least
some times?

How can one explain this phenomenon when the law says
that a MM can only sell nonexistent shares when buy
orders overwhelm sell orders? HOW CAN THE PPS DROP
PRECIPITOUSLY WHEN BUY ORDERS VASTLY OUTNUMBER SELL
ORDERS? This is not rocket science! Every sale by a MM
that is introduced into the DTCC system without good
delivery is automatically ASSUMED to have been done by
a MM acting in a bona fide MM capacity. This has to
end.

You at the SEC have mentioned in the prelude to
Regulation SHO that you have visibility of failed
deliveries within the system. PLEASE DON'T LOOK AT
JUST ACTIVE FAILED DELIVERIES, LOOK AT THE STATUS OF
THE "C" AND "D" SUB ACCOUNTS AT THE NSCC BECAUSE THESE
TRADES TECHNICALLY HAVEN'T FAILED DELIVERY. THE
"FAILED DELIVERY" WAS MASKED BY A "BORROW" WHICH UNDID
YESTERDAY'S GOOD DELIVERY. Do you think that the DTCC
fees generated in yesterday's trade whose "good
delivery" just got "undone" were returned to the
payer? Do you think the commissions and mark-up's
"earned" by the participants of the DTCC were returned
due to the "undoing" of this good delivery? I think
not! This is a fraudulent cash machine beyond belief.
And the fraud is against the investing public, those
whom the SEC is charged with protecting.

3) The SEC must closely monitor the activities of the
DTCC and realize that the DTCC IS the 11,000 b/ds and
bankers that we refer to as "Wall Street". These
abuses are being perpetrated by the coalescence of
11,000 b/ds and bankers hiding behind the shield
provided by organizing themselves as a limited purpose
trust company under the banking laws of the State of
New York. The linkage of these participants is
effected by the SIAC computer system. These abusive
practices have pitted the U.S. micro cap investors
against the Wall Street system. The Wall Street
"professionals" have a superior knowledge of, access
to, and visibility of the system for the clearance and
settlement of trades in the U.S. The Securities
Exchange Act of 1934 gives the SEC the mandate to make
sure that Wall Street "professionals" don't leverage
these advantages against the investors to whom they
owe a fiduciary duty. YOU AT THE SEC HAVE THE POWER
AND THE MANDATE TO ADDRESS THESE ABUSIVE ISSUES
IMMEDIATELY BEFORE REGULATION SHO MYSTERIOUSLY GETS
STALLED TO DEATH BY THE WALL STREET FRATERNITY SYSTEM.
As you recall, the last attempt to save these victim
companies came in the form of the "BBX" which
addressed many of these naked short selling abuses.
The Wall Street fraternity system, however,
successfully snuffed it out before its inception,
imagine that!

4) The mandate of the DTCC was to create a national
system for the expeditious clearing and settling of
the massive amount of trades on Wall Street. This
Congressional mandate was precipitated by the Wall
Street "paperwork crisis" in 1969 and 1970. What has
happened with the system at the DTCC is that the
constant striving for more rapid clearing and settling
of trades has caused the INTEGRITY of the system to
fall apart. Speed kills! The underlying presumption
made when the DTCC was formed and when MMs were
allowed to naked short sell while acting in a bona
fide capacity was that the Wall Street participants
WOULD ACT IN GOOD FAITH and not abuse this incredibly
easy opportunity to pick the pockets of U.S. micro cap
investors to the tune of hundreds of billions of
dollars. SO MUCH FOR GOOD FAITH. What really causes us
anxiety is that the big push now is to go to STP or
straight through processing. As we mentioned, this
means that the trade date will equal the settlement
date, or T+0. Just imagine the failure rate of
deliveries in this scenario. Almost all trades will
fail delivery without a loan "undoing" previous "good
deliveries", which will serve to camouflage these
abuses. This lack of INTEGRITY of the system at the
DTCC is why you are seeing hundreds of issuers trying
to exit en masse. This recent massive attempted exodus
has no historical precedent. The investors have had
enough of this and they are making the officers and
directors of the companies that they co-own aware of
this refusal to take no more abuse from the Wall
Street "fraternity" embodied by the DTCC. Enough
already!

The recent SEC Release forbidding the exit of all of
the shares of an issuer at one time has locked the
back door of the DTCC and nailed it shut. We investors
will respect your mandate but we expect the SEC to
clean up the system for clearing and settling that you
have now locked us into. Fair enough? The smaller
trading venues of the OTC: BB and the Pink Sheets
represent an incubator within which small companies
develop and mature while they are particularly
fragile. This is where jobs are created in the U.S.
The jobs of hundreds of thousands of Americans working
at or about to be hired at these developmental
companies need protection.

5) We would ask that the SEC address the massive
influx of naked short selling orders from Canada and
other offshore locations. The SEC must realize that
the Canadian brokerage system has a system that does
not value nor prioritize the concept for the "good
delivery" of shares purchased. They just don't get it,
or worse yet, they do get it and since the casualties
occur to U.S. companies and American citizens and the
benefits of the fraud go to Canadian b/ds, they choose
to turn a blind eye to it. The Investment Dealers
Association of Canada (the IDA) openly admits that
this just isn't a high priority for them. That is
their business, but when the DTCC allows these
incredibly lax delivery guidelines to interface with
our system for clearance and settlement with all of
its loopholes, then it becomes our problem.

We would request that you closely monitor for the
abuses involved in this "interfacing" with the
Canadian Depository System (CDS) via the NYL, DDL, and
A.C.C.E.S.S programs. Hopefully our SEC learned
volumes about these abuses while studying the Thomson
Kernaghan frauds and resultant bankruptcy as well the
myriad number of lawsuits against Canadian b/ds for
naked short selling abuses. During the discovery phase
of some of the recent cases, it was shown that well
over 90% of the income of several defendant Canadian
b/d firms, was derived from the naked short selling of
U.S. micro cap corporations on these trading venues in
the U.S.

6) We would also suggest a careful monitoring of the
abuses involved in allowing shares forbidden by 15c3-3
to be loaned out that are indeed being loaned out.
Here we are referring to "fully paid for securities"
and "excess margin securities". We would advise the
SEC that the "Customer Protection Rule" (15c3-3) has a
gigantic loophole built into it that Congress didn't
foresee. This loophole allows buying broker/dealers to
choose whether to take "Possession" of share
certificates for shares bought on behalf of their
clients OR to keep them in a "Control" location. The
12 locations that qualify as "Control" locations just
happen to include the locations where most of these
naked short-selling abuses occur. Hence the common
reference to them as the "Dirty dozen". Note that the
DTCC, the Central Depository for Securities in Canada,
clearing agencies, Canadian banks, etc. qualify as
"Control" locations.

How can the institutions of a country like Canada,
with its Rule 100, that doesn't consider the good
delivery of purchased securities a high priority,
possibly qualify as a "Control" location for the
protection of our citizens' investments? How can the
DTCC with its gigantic conflicts of interest between
investors and the Wall Street "professionals" that owe
them a fiduciary duty, be considered a "control"
location for the protection of investors' shares? Rule
15c3-3 is referred to as the "Customer Protection
Rule" or CPR". Where is the protection? The Congress
in 1934 had no way to anticipate the skullduggery that
would evolve over the next 70 years.

7) We would ask that the SEC realize the prominent
role of offshore hedge funds working through Canadian
naked short selling margin accounts. As you know,
hedge funds with less than 100 participants do not
need to follow the precepts of the 1940 ICA or
Investment Company Act. They are allowed, for some
unknown reason, to fly under the regulatory radar.
Many U.S. MMs have very distinct ties to offshore
hedge funds as you well know. Besides abusive MMs
working through proprietary or non-proprietary
accounts while theoretically under the umbrella of
immunity from borrowing provided by acting as a "bona
fide" MM, the next most common abuse we see are
offshore hedge funds operating through Canadian margin
accounts. This puts them two steps out of the SEC's
grasp theoretically. Space underneath this umbrella of
immunity from borrowing is very much for rent. Rent is
most often paid by "order flow" to these unethical
market makers.

8) When contemplating the importance of curing these
abuses, realize that naked short selling totally
undermines many of the most important aspects of the
"33 and '34 Acts. For instance, the DTCC cranking out
unregistered shares of an issuer without an exemption
from registration or the permission of the issuer, and
in violation of state securities and corporation laws.
A "restricted" stock under the 144 Rule has no meaning
whatsoever when both crooked insiders and naked short
sellers can sell them now and just sit on a failed
delivery for a year or two. This brings us back to
something even worse than the old Regulation S abuse
days.

The SEC demands to know every time an issuer issues
registered shares and the issuer needs your blessing.
Does not a shareholder or a company's management have
the right to know every time the DTCC illegally issues
unregistered shares without an exemption or your
permission? Should an investor file a 13-d when he
reaches 5% ownership of the issued # of shares of a
company or 5% of the total amount of shares, real and
fake, at the DTCC? Does a person become an affiliate
or "control" person when he owns 10% of the issued
shares of a public corporation or 10% of the total
shares represented as being owned on monthly brokerage
statements to shareholders? Which # does Rule 16 (a)
refer to? Should every person ever fined for 13 d or
16a violations appeal these fines, look at the # of
"counterfeit" shares in existence at the DTCC at the
time of the alleged violation, and recalculate what %
of the TOTAL # of shares, real and fake, he really did
have control of?

All one has to do is go through the '34 Exchange Act,
rule by rule and regulation by regulation, to see how
undermined these securities laws really are when
unregistered, unrestricted, dividend lacking, vote
missing, and basically nonexistent "pseudo-shares"
fill the computer banks at the DTCC as well as the
monthly brokerage statements of investors who THOUGHT
they had bought real "packages of rights" (shares) in
a public corporation. People that think that they own
1% of the shares of a public corporation may only own
one-fourth of that and the one-fourth of 1% ownership
share is of a greatly damaged company and not the
company that was "advertised".

A lesser % ownership of a greatly damaged entity is a
double whammy and even more heinous than a "bait and
switch" fraud wherein you at least get 100% ownership
of the inferior product. The repercussions of naked
short selling are so far reaching that they undermine
the very concept of the publicly traded "corporation"
which forms the very foundation of the U.S. financial
system. The SEC must take this issue seriously now, or
it certainly will have to later, after the house of
cards build by DTCC's behavior completely crashes
down.

9) We also believe that the monthly disclosure of net
short positions will increase the visibility of these
abuses as well as to deter them. Again, the U.S.
taxpayers that just so happen to prefer micro cap
investments on these lower trading venues deserve the
same protection as those investing on the national
exchanges and the NASDAQ NMS. They pay taxes just like
the investors in GM do. The agencies clearing these
trades that never seem to result in a completed
delivery must be held accountable and their actions
need to be more transparent to the investing public.
The registered clearing agencies that continue to
clear trades for b/ds that chronically don't deliver
shares must be held accountable for acting as a
"fence". (See, e.g., Koruga v. Fiserv)

In summary, we can't impress enough upon you how
critical IMMEDIATE changes are within the system for
monitoring the DELIVERY of shares purchased in the
United States. There cannot be a disconnect between
the clearance and settlement of a trade and the good
delivery of the shares sold. Clearing, settlement, and
good delivery form the three legs of the stool of
integrity for the Wall Street trading system.

What the current system does, in essence, is to push
the price per share of these victimized companies to
artificially low levels via massive increases in the
overall SUPPLY of shares that can be sold at any
instant in time as a result of the company being
targeted by naked short sellers. This creates a line
up of opportunistic investors that have done their due
diligence and sense an incredible bargain at hand.
Their buy orders come into the system and since there
are no real sellers at these artificially low levels,
this excess of buy orders over sell orders is
addressed by market makers naked short selling yet
more nonexistent shares into this imbalance. These
trades are allowed to clear and settle via a "borrow"
from the "lending pool" at the DTCC as allowed by
Addendum C to the rules and regulations at the NSCC.
This adds yet more to the supply of "counterfeit
electronic book entries". This further dilution adds
yet more downward pressure to the share price. Victim
development stage companies, being not yet cash flow
positive, are then forced to pay their monthly bills
by selling shares at artificially low levels which
adds yet more dilution, this time involving "real"
shares. This constant increase in "real" shares as
well as "fake" shares finally proves too much of a
burden for the victim company and the intended
bankruptcy ensues.

Since the fraud being perpetrated starts off way down
at the foundation level of a company and involves the
"counterfeiting" of a company's "shares" or basic
equity ownership units, the repercussions of the fraud
are far reaching and the protective effect of the
securities laws that protect shares and shareholders
is violently undermined.

The fraudsters have learned that it is much easier to
counterfeit electronic book entries than paper
certificates and it has nothing to do with the price
of paper and ink! They are also aware that our
financial system is trying to do away with paper
certificates because of their cumbersome nature.
Therein lies their niche. Since "shares" represents
"packages of rights" attached to a public corporation
and these "counterfeit" shares have no such rights,
every time a shareholder tries to exercise one of
those missing rights the fraudsters find themselves in
a pickle and a cover-up fraud is necessitated.

Look no further than the way the DTCC handles a 100%
share dividend of a victim company with a plethora of
"counterfeit electronic book entries" in existence at
the DTCC. The right to a dividend being distributed
represents one of these share "rights". Even though
the transfer agent mails out a legitimate certificate
made out to Cede and Co., the DTCC's nominee, only for
the amount of "real" shares held at the DTCC, it
appears that the DTCC allows their participating
broker/dealers to send out a monthly brokerage
statement to their client/shareholders implying that
the Transfer Agent sent enough dividend shares to
cover both the real and fake shares at the DTCC and
they just double the number of counterfeit electronic
book entries with no real share certificate anywhere
in sight to justify their existence. The nonexistent
entities sold have become counterfeit electronic book
entries which have somehow become procreative. The
heinous nature of this crime can't be overlooked. When
the company finally goes bankrupt the shareholders
haven't got a clue as to how they were defrauded and
the bogus electronic book entries get thrown into the
grave along with the company. An interesting study
would be to "exhume" some of these recently "deceased"
micro cap companies and determine the number of
"CEBEs" in existence at the DTCC at the "time of
death."

If this whole issue had to be summarized in three
words, they would have to be CONFLICT OF INTEREST. The
conflict of interest is between the Wall Street
"haves" and the investor "have-nots". The Wall Street
"professionals" have a superior knowledge of, access
to, and visibility of the trading, clearing,
settlement, and delivery systems in the securities
markets. They also have the ability to create an
unlimited supply of counterfeit shares to sell to
investors. The micro cap investor "have-nots" have not
a chance in the world for a successful investment.

When broken down into its simplest form, the clearing,
settlement, and delivery system at the DTCC allows
fraudsters to target a company, sell nonexistent
shares in unlimited numbers (see, e.g., Pinnacle
Business Management, Inc.), thereby creating a giant
pile of money in their margin or proprietary accounts.
These naked short positions at the DTCC must be
collateralized at 130% but the collateral necessary is
MARKED TO MARKET on a daily basis. This explains in
part why you will see 100 or 200 share prints at the
bid on thinly traded OTC:BB and Pink Sheets
securities, especially where there are wide spreads
between the bid and offer. These are referred to as
"NEBBs" or non-economic bid-bangings. They are a form
of market manipulation that try to paint the picture
of a stock constantly being sold by shareholders but
sold into bids that are extremely small i.e. there are
no buyers around that want to invest in this scam.
They represent a good screening tool to estimate the
level of manipulation of a victim company. All one has
to do is to chart the percentage of trades of an
issuer that are NEBBs. The 2002 NEBB champion is well
on its way to defending its crown in 2003. It is a
small company called NP Energy (NPER) that trades on
one of these smaller trading venues. . As the share
price tumbles from the massive artificially
manufactured dilution that ensues from these sales,
the amount of collateral needed drops precipitously
and is returned to those perpetrating the fraud. Thus
the naked short sellers NEVER NEED TO COVER THESE
NAKED SHORT POSITIONS in order to receive the proceeds
from the sale of nonexistent stock. They just need to
keep the share price pinned down to artificially low
levels, which is extremely easy to do because the
market makers really do "almost" assume the role of a
bona fide MM when the stock previously trading at $5
now trades at a dime. At the 10-cent level there
really is a long line up of opportunistic investors
and nobody willing to sell "real" shares. NASD Rule
3370 encourages MMs to naked short sell into these
imbalances. Thus the further along the "bear raid"
matures the more "bona fide" the MM activity becomes.
As the PPS continues to drop, the proceeds of the
sales of nonexistent shares at the $4 and $5 level is
sitting in the pockets of the fraudsters EVEN THOUGH
THEY HAVE NEVER COVERED THE NAKED SHORT POSITION. This
is a closed system and a "zero sum game", the money in
their pockets is, of course, the money paid by the
investors that thought they were buying real "shares".

A particularly popular version of these naked
short-selling attacks is called the "death spiral"
financing. In many of these, the fraudsters really do
have the audacity to take the proceeds from the
fleecing of the investors of a company via selling
nonexistent shares to naive investors, and then turn
around and loan this very same money to the victim
corporation via a "floorless" convertible debenture.
After pummeling the price per share with yet more
naked short sales, the fraudsters convert the fixed
amount of the debenture into a massive amount of
shares thereby covering the original naked short
position and then typically taking control of the
company, or what's left of it. Again, the non-delivery
of shares sold for extended amounts of time, forms the
foundation of this heinous fraud. There is at least
one willing market maker and clearing firm acting in
complicity with the actual naked short selling
fraudster.

The SEC needs to realize that there is a subliminal
message being sent as to why so many of the trades in
the markets of these victim companies need to be
completed via a "borrow" from the Automated Stock
Borrow Program. This entire system pushes the PPS to
an artificially low level, well below the PPS dictated
by the intersection of the supply of real shares and
the demand for real shares to a level at which no
investors can afford to sell shares. The forces of
supply and demand are still at work but the supply
variable is grossly exaggerated from the presence in
the system of all of those bogus electronic book
entries that can be sold at any instant in time.

Perhaps the solution is to not allow the buying broker
to cash the investor's check UNTIL "real" shares are
for sale at those levels. Let the supply and demand of
"real" shares only dictate market price. What a novel
concept! The DTCC and its participants would obviously
throw a fit since their fees, commissions, and markups
would decrease. Please recognize that these Wall
Street fraudsters are making fortunes both on the fee,
commission, and mark-up side of the equation AS WELL
AS receiving the proceeds from the sale of nonexistent
entities. Note also that the proceeds of these "sales"
are, of course, exactly equal to the losses of the
investors since it is their money simply being shunted
over to the fraudsters.

The system of clearing and settlement at the DTCC
interposes the NSCC sub-division of the DTCC as the
"contra-party" to all trades as well as the
intermediary of all share loans. When purchased shares
don't show up on settlement day, the NSCC borrows
shares on behalf of the party failing to deliver. They
borrow these from a willing lender. Because of this
"smokescreen" provided by the loan, the failed
delivery becomes a temporary "good delivery" and the
trade clears and settles. At the end of the day, the
party failing delivery does not owe the purchasing
broker/dealer, they were paid off with the borrowed
shares. Nor do they owe the lending party because it
was the NSCC that made the borrow. They owe the NSCC
this debt and the NSCC in turn owes the lending party.

Can you see the "layering" going on here just as it
does in anonymous offshore "nominee" corporations
owned by other anonymous offshore "nominee"
corporations? The naked short selling MM and their
co-conspiring participants at the DTCC OWE the other
11,000 participants at the DTCC this debt. Since many
of these participants are playing these very same
games themselves, the 11,000 participants end up owing
THEMSELVES billions of dollars worth of shares of
issuers' stock. Now think for a minute about these
shares of stock. Who owns them? Well, the rules of the
DTCC say that the DTCC IS THE LEGAL OWNER OF THESE
SHARES THROUGH THEIR NOMINEE "CEDE AND CO." The
investors only purchased them, the DTCC OWNS them. The
net effect of all of these perversions is that the
11,000 b/ds and banks at the DTCC owe themselves their
own possession. Is it any wonder why these IOUs stay
on the books for so long and how they will even
survive a dividend distribution?

As long as no participants at the DTCC "rock the boat"
and buy-in any of these debts from their
co-participants, then all will be fine. Now you can
see why the DTCC, when faced with an issuer
distributing a 100% share distribution, doesn't force
those that owe it shares to level up their accounts
before the dividend record date like any other
creditor would. Instead it tells its
participants/debtors, itself basically, that you don't
have to pay your debt because of this dividend, we'll
just start up a new IOU for the dividend shares and
place it right next to your old unpaid debt. When the
debtors ask, "But what shall we tell the investors on
their monthly brokerage statements?" The reply is to
just tell those naive investors that their dividend
shares arrived from the Transfer Agent safely, and
since we hold them in an anonymous "pooled" format,
they'll never know the difference! So what, in
essence, are the shareholders really buying since
these bogus electronic book entries don't have the
rights attached to shares? They're buying the "right"
to sell these bogus electronic book entries to some
other naive sap that senses a bargain since the price
is so cheap.

We understand the need to inject liquidity into the
markets of thinly traded securities when buy orders
greatly outnumber sell orders. We also understand that
these trades have to clear and settle. Genuine "Bona
fide" market making truly is a good thing. What we
have to convince you of is that if these naked short
positions are not covered within a day or two, as the
authors of Addendum C and Rule 3370 intended, then the
integrity of the process goes out the window and the
predators take over. Stocks shouldn't be trading at
20-cents per share when there are no "real" shares for
sale until 35-cents.

Could these fraudulent schemes work against a more
mature company that has graduated from its
"incubation" period on the OTCBB and Pink Sheets and
is now cash flow positive? No, not nearly as easily.
The fraudsters must catch their prey when they are the
most fragile. That being when they must constantly
sell shares to develop the company and keep the doors
open. This is the key to the "Suffocation by dilution"
cited on the company's death certificate. The sobering
reality is that it usually doesn't matter if the
development stage company "has the goods" or not. Even
if that new technology or cancer cure is legitimate,
the company can't outmuscle Wall Street.

U.S. investors are smart and they know how to
calculate the book value of a stock. A company does
not have to be cash flow positive to have a good solid
book value. Their brain tells them that a stock
trading at 10% of book value represents an incredible
opportunity as an investment. Their brain also tells
them that they should average down their cost if the
stock drops in price post-purchase and starts trading
at 5% of book value. After a while all of these
seemingly judicious decisions land an investor and his
family into financial problems just from trying to get
back to even. The more due diligence an investor does
on these solid companies the more likely he is to get
in over his head because he just knows that this
company really does "have the goods". The underlying
presumption is that the SEC, over the years, has made
sure that the playing field is indeed level. The
element of TRUST is involved.

As you know several companies did recently make a
successful exit from the DTCC before the back door was
locked and nailed shut. This afforded researchers a
view of what was really going on behind the scenes on
Wall Street as it pertains to the "delivery", or lack
thereof, of shares purchased. Once out of the DTCC
system for clearance, settlement, and delivery of
purchased shares, the transfer agent of these issuers
takes over these duties. The transfer agent is an
employee of the public company it serves. In the
trades under study, approximately 3 to 5% of sell
orders resulted in the "good delivery" of these shares
to the purchaser's firm. This was after a successful
exit from the DTCC and changing over to a "certificate
only" or "custody only" basis for the transference of
share ownership. Good delivery in this system results
in the Transfer Agent receiving in the mail an
endorsed certificate that he cancels and reissues in
the name of the new buyer. This transparency of our
system created by this successful exit from the DTCC
provided a view that was rather shocking to say the
least. The arrogance of the Wall Street community into
not even cleaning up their act when the floodlights
are on them speaks volumes. The problem is that of no
deterrence to this type of activity because even when
you get caught red-handed the reward overshadows any
risk.

We believe that the SEC needs to get their arms around
the concept of just what the DTCC is all about and
especially its structure and rules and regulations.
The DTCC is the legal owner of $127 trillion in assets
and is the single biggest financial institution on
earth. Have you at the SEC ever wondered why 99% of
the American public doesn't have a clue as to what the
DTCC is and that they legally "own" all of the shares
held in "street form" that investors have purchased?
The participants of the DTCC have the most gigantic
FIDUCIARY DUTY OF CARE ever even contemplated. The
DTCC is comprised of 11,000 broker/dealers and banks.
Many of these individual 11,000 b/ds and banks are
behemoths in their own right but imagine the "critical
mass" attained when these 11,000 are allowed to
coalesce themselves into one limited purpose trust
company with rules and regulations containing
literally hundreds of conflicts of interest between
its participants and the investors they owe a
fiduciary of care to. The DTCC embodies what is
referred to as the "Good ole boys network on Wall
Street".

The DTCC is a master template for utilizing the
concept of "pooling" in order to achieve one's goals.
It's very clever to commit improprieties when acting
as a member of a pool; it creates critical mass and
mitigates individual liability on the part of any one
particular b/d. Note that the market makers on the
OTCBB and Pink Sheets operate as an anonymous
"pooling" of DTCC participants. The activities of
individual MMs is invisible even to those with Level 2
visibility. Notice that the 11,000 b/ds operate as a
"pool" as they act as the contra-party to all trades
on Wall Street and as the intermediary in loaning
shares to mask failed deliveries.

Notice that the "not so bona fide" MMs that need a
borrow in order to effect "good delivery" of the sale
of nonexistent shares borrow the shares from a
"pooling" of their 11,000 co-participants at the DTCC.
This pooling of b/ds do the actual borrowing from
individual lenders. At the end of the day this pooling
of b/ds owes itself these debts. If individual b/ds
were borrowing from individual b/ds then these debts
would undoubtedly be called in before any dividend
distribution of the issuer's shares otherwise an
individual b/d could be held liable for lying to a
client on his monthly brokerage statement as to
receiving dividend shares from the Transfer Agent.
Note also that all of the shares at the DTCC, both
real and fake, are held in anonymous pools.

Until all of the legitimate shares, that is those with
a certificate in existence to back it up, are pulled
out of the DTCC by shareholders demanding delivery of
their certificates, those that bought "fake" shares
are oblivious to this fact. This pooling phenomenon
gives power to the malfeasor and blindness to the
victims. Notice how the shares in a given b/d's
"lendable shares account" are anonymously "pooled"
together. Shareholder Sam from Chicago will never know
that the shares in his qualified retirement account
have been illegally rented out to cover some MM's sale
of nonexistent shares.

Notice how the DTCC acts as an irrefutable monopoly in
the clearing and settling of trades on Wall Street. If
an issuer is unhappy with all of the conflicts of
interest at the DTCC and the daily frauds being
perpetrated therein, it has no options to go elsewhere
for its trades to be cleared and settled. Where is the
incentive for the DTCC to do a good honest job? Is the
SEC aware that the DTCC sells "Securities positions
listings" or SPL lists to issuing companies for $1,850
per year? Does the SEC realize that the SPL list for
the company with the single biggest collection of
counterfeit shares in the history of Wall Street will
portray to management that all is in order in regards
to the trading of their securities?

Can you imagine all of these victimized companies
paying $1,850 per year to be perhaps intentionally
misled by the DTCC in an effort to cover up the loans
masking failed deliveries caused by the sale of
nonexistent shares? Does DTCC know or care that they
might be committing criminal mail and/or wire fraud?
Does the SEC? As we mentioned earlier, every fraud
committed at the DTCC needs a cover up fraud to be
committed whenever victim companies start asking
questions about the disposition of their shares or
when shareholders try to exercise any rights attached
to "real" shares that seem to be mysteriously missing
from their purchase.

One concept that we would hope that the SEC can grasp
is that for an issuer to have 100 million real shares
in existence at the DTCC and 300 million counterfeit
electronic book entries at the same time, then the
same real or fake book entry must be being loaned out
in more than one direction at any given time. How can
a system like this have any integrity? Notice what
happens when the above portrayed company declares and
distributes a 100% share dividend. The historical lack
of the applicability of NASD Rules 3350,3360,3370, and
Rule 10a of the 1934 Securities Exchange Act have
created a fraudster's dream on the OTC:BB and Pink
Sheets.

The 300 million bogus electronic entries cited above
are allowed to give birth to yet another 300 million
bogus electronic "dividend" book entries just to keep
the initial fraud from being discovered. Can you
imagine the Board of Directors of a victim corporation
peering through the windows of the DTCC and watching
this crime being committed to the company that they
have spent years and years developing? These new
"offspring" of the old counterfeit electronic book
entries are set up in a "D" sub account at the DTCC
right next to the original 300 million-share debit.
But since the creditor, the DTCC itself, doesn't
demand the payment of the original debt like any other
creditor would in the face of a dividend distribution,
the "counterfeit shares" are allowed to have babies.
Is the DTCC aware of all of these debit accounts that
go unpaid for years on end? Of course they are,
they're reminded every time a dividend is distributed
or a proxy solicitation is done for an Annual General
Meting. Every Friday afternoon when they send out the
weekly SPL lists they are reminded of it.

One thing that we hope the Enforcement Division of the
SEC realizes is that the ulterior motives of those
bringing disparaging information about an issuer or
its officers or directors should be considered. We are
very well aware that the naked short selling community
works hand in glove with the Enforcement Division of
the SEC. They are the single largest source of "tips"
as to alleged corporate malfeasance being committed.
Some of the information is accurate but a lot of the
information is tainted.

Since the only participants within the system that can
LEGALLY sell "SHARES" without borrowing are bona fide
market makers that, by definition, will rapidly cover
these sales, all of the intentional sales of
nonexistent "counterfeit shares" not repurchased
within a couple of days are therefore illegal or
fraudulent. It is, of course, 100% illegal for a
"would-be bona fide market maker" to rent out to
co-conspirators space underneath this umbrella of
immunity from making the borrow that he has been
entrusted with in good faith.

Please consider the source of the income for all of
those people knocking on the SEC's door with
disparaging information concerning an issuer. Where is
the monetary incentive for all of these "shareholder
advocates" that spend hundreds of thousands of dollars
in hiring lawyers, private investigators, and Internet
bashers to dig deeply into the background of corporate
officers, directors, and even shareholders since the
only people that can legally sell "unborrowed" shares"
are bona fide MMs and this investigative activity is
obviously not in the job description of a "bona fide
market maker"?

Does this reality not indicate that the real criminals
might be those supplying this disparaging information
since there is no legal monetary incentive to do this?
Are all of these Internet bashers we see by the
thousands really philanthropic billionaires trying to
save investors? We can only hope that the SEC is aware
of the fact that those handing all of this "maybe not
so accurate" disparaging information to the
Enforcement Division usually have personally amassed
or are co-conspiring with those that have amassed
immense illegal naked short positions which make it
economically feasible to launch these
investigations/witch hunts and to hire their
co-conspiring Internet bashers while incurring the
risk of jail time for racketeering activity.

When addressing the potential size and breadth of this
fraud referred to as naked short selling, we might
offer the following "metric" relevant to the current
market frauds being perpetrated. We recently saw the
frauds being perpetrated by the "specialists" on the
national exchanges. A specialist is basically a single
market maker of a stock who everybody knows the
identity of and who has no anonymity whatsoever. Now
consider the typical OTC: BB or Pink Sheet stock with
15 MMs that operate in total anonymity and have plenty
of opportunity for collusive activity. In fact we know
that many of them collude using instant messaging to
coordinate their actions.

One might conservatively anticipate perhaps 10 times
the "hanky panky" going on here as compared to the
fraud being committed by the specialists operating in
the light of day. Now compare the existing delivery in
rules in Canada versus those in the U.S. One might
conservatively anticipate 10 times the chicanery going
on behind the doors of the Canadian broker/dealers as
it relates to naked short selling as opposed to that
within a U.S. b/d.

We've seen the recent chicanery going on with the
mutual funds that must file disclosures as per the
1940 Investment Company Act. Now let's consider the
amount of chicanery in regards to naked short selling
going on within unregulated offshore hedge funds that
fly under the radar and let's put another 10-fold
multiple here. You at the SEC are very up to speed on
what goes on with these hedge funds as you just
finished an exhaustive study on them.

Now let's imagine the typical naked short selling
consortium that involves certain MMs, certain hedge
funds, and certain Canadian b/ds working in complicity
and taking advantage of all of these synergies. Can
you get a picture of the magnitude of this fraudulent
behavior in comparison to the other modern day frauds
being committed in our securities markets that have
just recently been unearthed? In studying the recently
exposed frauds involving the mutual funds,
specialists, and analysts, one could make the analogy
that these frauds are like roof shingles of the "Wall
Street house" blowing off in a violent windstorm. In
the naked short selling fraud wherein the basic
ownership unit of a public company, the "share" and
its associated package of rights, is counterfeited and
stripped of its attached rights, then the entire
foundation of this "Wall Street house" starts
crumbling and the repercussions are much more
far-reaching.

Notice that the common denominator of all of these new
fraud investigations is the Wall Street "professional"
taking advantage of his superior knowledge of, access
to, and visibility of the markets while picking the
pockets of mom and pop investors. Naked short selling
is no different except for the neighborhood it occurs
in, namely that of the OTC: BB and Pink Sheets. It
doesn't much matter whether it be mutual funds
allowing hedge funds to "market time" their trades in
exchange for their business or specialists
inappropriately interposing their orders when both
buyers and sellers were present and their services
were not needed. The common theme holds true. It's the
Wall Street "professionals" against the mom and pop
investors.

All in all, the fraud being perpetrated is extremely
brilliant in its design. Investors don't have a clue
as to why their investment went "kaput". There is a
steady supply of new victims willing to throw their
money onto the table as they sense a bargain in being
able to buy shares of a company trading perhaps at 10%
of its book value. Unfortunately, these new investors,
as well as their predecessors, have hopped onto a
"down" escalator heading towards the basement floor of
bankruptcy of the victim company. Some just happened
to have gotten on at higher floor levels and others at
lower floor levels, but a 100% loss is still a 100%
loss. These "bear raids" can become particularly
catastrophic when management teams and shareholders
successfully diagnose the existence of the naked short
selling attack and decide to outwit the perpetrators
of the fraud by digging deep into their own pockets
and buying and attempting to register every share in
sight.

Typically this approach only increases the financial
losses as it is impossible to "outmuscle" a $127
trillion institution and hedge funds with over $760
billion in assets. In these cases the usual result is
that the deliveries of the demanded certificates are
stalled via what the DTCC refers to as a "DTCC chill"
on the delivery of the issuer's certificates. The
fraudsters then continue to sell nonexistent shares
into each and every buy order until the loyal
shareholders and management teams spend themselves
into financial distress.

There is a definite self-fulfilling prophecy to these
naked short-selling attacks. The deep pockets of the
DTCC participants and hedge funds will easily be able
to post the margin maintenance requirements and net
capital reserves needed no matter how much buying the
shareholder and management groups can come up with.
THE DEEPEST POCKETS ALWAYS WIN THESE BATTLES, THE ONLY
QUESTION BECOMES HOW LONG THE VICTIM COMPANY CAN
SURVIVE THE ONSLAUGHT BEFORE GOING BANKRUPT. Only the
SEC can combat this financial terrorism, IF YOU ARE
WILLING to do so by implementing real regulations with
real teeth, that is, severe punishments for violators.
Half measures are nothing more than complicity, when
you know what is going on and are unwilling to stop
it.

Further, it is not only the financial "critical mass"
that can't be overcome, but the synergies created by
this vast amount of money as well as the ability to
utilize market maker manipulation techniques as well
as the giving and taking of "back scratches" amongst
the participants at the DTCC, result in a playing
field so tipped in favor of the DTCC participants that
it's a wonder any companies on these trading venues
survive at all. The oxygen lines to these incubators
are being stepped on by some very heavy boots.

It is our opinion that the solution to this problem
must come in two phases. The first would be to address
pre-existing naked short positions or "failed
deliveries" and loans made to cover-up "failed
deliveries" in companies with "open positions" in
excess of the NASD Rule 11830 "benchmark" set at
10,000 shares or one half of 1% of the shares issued
and outstanding. Please don't forget that "failed
deliveries" refers to the arithmetic sum of "failures
to deliver" on the books plus loans made to mask
"failures to deliver". None of this even addresses the
"open positions" held "in-house" from the "desking" of
buy orders from a brokerage firm's own client right at
the trading desk.

We believe that the DTCC is walking a very thin line
when they put in a Press Release to the U.S. investing
public, that deliveries are not allowed to fail at the
DTCC. We believe that most securities lawyers would
find this to be perhaps extremely misleading.

Naked short selling abusers need to be pointed to the
open market and made to buy back under a "guaranteed
delivery" basis each and every "share" that they sold
with the very same zeal they showed when they sold
these nonexistent shares at much higher levels. They
have a very large pile of defrauded investors' cash
with which to do this. This would hopefully prevent
any further bankruptcies in the near term, as there
are hundreds of victim companies currently teetering
on the edge.

The second phase would address "leveling the playing
field" for the future. Part of the wording of the
proposed rule was very troublesome when addressing
securities that were not successfully delivered within
two days of settlement. In addition to the 90-day
"jail sentence", a mandated buy-in should be
immediately effected. What is needed is deterrence.
We're dealing with human beings here, deterrence is
everything.

The SEC must require that if delivery fails within a
given timeframe then the buying broker/dealer buys-in
the failed delivery and hands the bill to the
offending seller's broker/dealer and/or clearing firm
which then passes it on to the individual naked short
seller. Phase 1 cleans up all of the existing fails to
deliver and those masked by loans at the DTCC and
phase 2 prevents this from ever happening again.
Theoretically there would be no need for a listing of
issuers with "failures to deliver" in excess of the
Rule 11830 parameters once phase 1 is over. We sense a
bit of a defeatist attitude on the part of the SEC in
this regard and it concerns us. THIS IS FRAUD, LADIES
AND GENTLEMEN, TAKING PLACE UNDER YOUR NOSES AND ON
YOUR WATCH, WHEN YOU HAVE THE POWER-INDEED THE MANDATE
UNDER THE 1934 ACT-TO STOP IT. THIS IS AN EMERGENCY
AND TIME IS OF THE ESSENCE. Action must take place
before any more dividend processes are hijacked or any
other shareholder votes and proxy solicitations are
sabotaged.

One other aspect of this travesty of justice needs to
be looked at. The SEC has had both the power and the
mandate to address this form of securities fraud but
for some reason hasn't even started chipping away at
this iceberg. Why? If the problem was the lack of
money or manpower then the recent allocation of the
funds to hire an additional 710 lawyers, accountants,
and investigators by the SEC should remove this as a
possible excuse for inaction.

The civil service vetting process was even waived so
that these new employees could come aboard quicker. If
the problem involves the complicity of certain
regulators with these fraudsters, then this would have
to be addressed appropriately.

If the problem centers around not knowing the modus
operandi of the perpetrators of the fraud, then we
would love to help out in the education process.
Before you attack this problem, please address the
reasons for the inactivity in the past so that history
doesn't repeat itself. The reality is that the DTCC
and its 11,000 participants represent the single
largest financial cartel-indeed by far the largest
cartel-on earth. The political power and influence
that this body wields is beyond description. Hopefully
the SEC is not intimidated by being a "David" against
this "Goliath". Especially when you at the SEC have
regulatory authority over the battlefield.

The typical scenario we see day after day is that a
victimized company and its shareholders file hundreds
of complaints with the regulators. The louder they
complain, the more important it becomes to silence
them. The regulators get approached by Wall Street
insiders with disparaging information about the
issuer. The regulators take this information as gospel
truth and go after the victim company. Officers and
directors of the victim company then often find
themselves the subject of various types of "sting"
operations, for instance, the recent "Bermuda Short"
sting.

Shareholders see the regulators targeting their
investment and they dump their shares. The price per
share tanks and the company soon thereafter dies from
over-dilution. Game over! Most often the SEC and the
Department of Justice don't even realize that they're
doing the dirty work for the perpetrators of the naked
short selling fraud and that the information they were
given was totally bogus. Remember the alleged
manipulator/extortionist Amr "Anthony" El Gindy and
his bribery of FBI agents? When Aunt Edna writes to
the SEC and complains that her OTC: BB investment is
being heavily naked short sold, nothing happens. When
a Compliance Officer from the dirtiest market-making
firm in history complains that the CEO of Aunt Edna's
investment is doing something naughty, a full-scale
investigation is opened. Please question the motives
of those supplying disparaging information.

Have we reached the point in time where market makers
should go the way of the dinosaurs? Does a buyer and a
seller really need a middleman to find each other? The
Electronic Communication Networks (ECNs) and
Alternative Trading Systems (ATSs) seem to work well
in uniting a buyer and a seller without a middleman.
Is the "injection of liquidity" by a market maker
theoretically acting in a bona fide capacity worth the
conflicts of interest and fraudulent behavior this
role brings with it? Should stocks really be trading
at artificially low levels below the intersection of
real supply and real demand in order to suck in new
victims into the trap?

If there aren't many "real" shares available at the
offer, then perhaps the buyer should have to step up
and pay more for "real" shares. Please don't think
that the system is doing an investor any favors by
allowing him or her to buy shares below the market
dictated intersection of the supply and demand graphs.
Nothing could be further from the truth. You refer to
the market makers as "injecting liquidity" into the
markets of thinly traded securities. In order for the
system to have INTEGRITY, this "liquidity" would have
to be "injected" BOTH when buy orders outnumber sell
orders and when sell orders outnumber buy orders.

Not only is there basically zero liquidity being
"injected" on the buy side when the share price is
falling, there is actually a "net negative" liquidity
in the system as long shareholders wanting to sell
into the buy orders that do appear are beat to the
punch by these fraudsters with their superior
visibility of buy orders selling nonexistent shares
into these buy orders. These long shareholders are
prevented from taking intermediate sized losses as
they have trouble hopping off this down escalator
heading to the basement floor represented by the
bankruptcy of the victim corporation. The bids
injected by abusive market makers during the collapse
of the share price are usually made for the legally
minimum size and when they sense a seller in the
market they'll typically take him or her out on their
hands and knees. This "sell a million and buy a dozen"
routine is not exactly "bona fide market making
activity". The question often arises; can an ethical
market maker even make an honest living in this
post-decimalization environment? Is this how they
mentally justify fraudulent behavior allowing them to
sleep at night?

Two aspects of naked short selling that are often
overlooked have to do with both national security
issues and organized crime issues as they pertain to
money laundering from offshore sources. As you know,
the Canadian brokerage system is often used as the
"conduit of choice" to introduce naked short sell
orders in an effort to circumvent tougher U.S. laws
against naked short selling. Since the accepting of
naked short sell orders of U.S. stocks trading under
$1 is an ultra high risk and ultra high payout
endeavor, Canadian broker/dealers must charge usurious
margin maintenance requirements to collateralize these
high risk positions should something go awry in the
intended bankrupting of the victim company.

Typically, margin maintenance for the naked short
selling of a 5-cent stock necessitates putting up the
market price of the stock, 5-cents, plus 50-cents per
share margin maintenance. To most investors, that is a
usurious amount of money to put up just to naked short
sell an issuers stock. That is unless you have large
piles of illicit money in need of laundering. In that
case it is a perfect way to introduce large amounts of
dirty money into the system for laundering and then
later returning it to its offshore tax haven home once
the victim company has been successfully bankrupted.
Whether the money is from illicit drug deals or is
aimed at terrorist financing (and the SEC knows that
this goes on, as do the FBI and DOJ), naked short
selling margin maintenance money is an excellent way
to launder tremendous amounts of money in a fairly
tough to detect manner. Notice in the Sedona case the
associations that some of the alleged co-conspirators
have with organized crime and drug money.

Since many of the frauds being perpetrated in naked
short selling involve shares held in qualified
retirement plans safeguarded by the 1974 ERISA Act,
perhaps the Department of Labor that oversees the
ERISA Act could be looked upon as a resource if the
SEC is handcuffed by monetary or manpower constraints.
Shares held in qualified retirement plans are, of
course, forbidden to be in margin accounts and
expressly forbidden from being loaned out; yet
hundreds and hundreds of investors in the U.S. are
being refused delivery of their shares after making
demand, even for the 60-day rollover period.

Retirement shares are an ideal target for these
loaning frauds as they are usually held for a very
long term and are seldom demanded for delivery due to
tax implications. Committing these frauds against the
invested funds designed to allow for a comfortable
retirement at a time when the investor can't work is a
particularly heinous crime. Attacking biomedical
companies with highly prospective cancer cures and
medical advancements is also a totally reprehensible
practice although very common.

When broken down into its component parts, naked short
selling by the participants of the DTCC, i.e., every
firm on Wall Street, involves investors purchasing
securities and paying a commission to his
broker/dealer who is a participant at the DTCC.
Unbeknownst to the investor, his broker/dealer that
just took a commission check and therefore owes a
fiduciary duty of care, takes these very same shares
and rents them to the investor's mortal enemy, the
naked short selling broker/dealer. The middleman in
this loan is the NSCC division of the DTCC. Does this
break the fiduciary duty chain?

The investor's shares thus provide "good delivery" and
allows the naked short sale order to "clear" and
"settle." This, in turn, creates counterfeit
electronic book entries at the DTCC that apply
downward pressure to the share price of the issuing
company via an increase in the shares available to be
sold at any instant in time. The buying broker/dealer
that owes this duty of care to the investor then gets
paid another "commission" by the naked short seller in
the form of a "rent" payment, again unbeknownst to the
investor. The goal of the naked short seller is to
bankrupt the company that the investor bought shares
in but in order to do this he needs the help of the
investor's broker/dealer who safeguards the investor's
shares.

All of this fraudulent activity is masked by allowing
the 11,000 broker/dealers and banks on Wall Street to
coalesce themselves into a quasi-public Self
Regulatory Organization set up as a limited purpose
trust company under the banking laws of the State of
New York and the immunity associated therein. The
buying b/d doesn't directly rent his client's shares
to his client's enemies, he throws them into an
anonymous pooling format from which the NSCC branch of
the DTCC effects the borrow. The middleman role that
the NSCC takes on helps to mitigate any liability of
an individual b/d that owes the fiduciary duty of care
to the original investor. Thus the duty of care gets
lost in the shuffle from the masking effect provided
by the middleman, the NSCC, which is in effect the
11,000 participants at the DTCC.

If you're going to commit crimes and perpetrate frauds
it is very clever to do it as an amalgamation of
individual entities with a tremendous amount of
anonymity, critical mass, and political clout. The
duties owed and the identities of the individual
guilty parties get lost in this smokescreen. Well, we
guess that we figured out what the "limited purpose"
of this "limited purpose trust company", the DTCC,
ended up being. Perhaps it was to take advantage of
the DTCC participants' superior visibility of, access
to, and knowledge of the U.S. system for the
clearance, settlement, and delivery of trades done on
Wall Street. The current system has CONFLICTS OF
INTEREST beyond description and allows the DTCC
participants to steal perhaps trillions of dollars
FROM THOSE TO WHOM THEIR INDIVIDUAL PARTICIPANTS OWE A
FIDUCIARY DUTY OF CARE. It is difficult to believe
that the SEC would allow such criminal activities to
occur under their auspices, with the arrogant impunity
DTCC and its participants currently exhibit.

But while DTCC needs to be a major focus of your
enforcement and prosecutions, please also realize that
naked short selling occurs in places other than the
DTCC. We see plenty of "pairing off" wherein two
brokerage firms will mutually agree not to demand the
delivery of shares bought and sold between the two
firms. They form their own little "no need to deliver"
duet. The phenomenon known as "desking" is also very
prominent especially when buy orders come from
offshore. "Desking" is a form of naked short selling
in which the broker/dealer of the buyer takes the
buyer's money and pockets it. They then send out a
purchase confirmation to the would be buyer stating
that his order got filled. The trade never did get
cleared or settled and of course there was no
delivery. When the company being invested in goes
bankrupt then the host broker/dealer just keeps the
money and nobody suspects a thing.

In a nutshell, the current system for clearance,
settlement, and delivery in place at the DTCC allow
fraudsters to sell nonexistent entities for literally
billions of dollars. The Automated Stock Borrow
Program at the DTCC converts these nonexistent
entities outside the DTCC into "Counterfeit Electronic
Book Entries" (CEBEs) inside the DTCC via "the borrow"
which creates "good delivery" which, in turn, allows
the trade to "clear and settle" (C and S). C and S
allows the DTCC to earn fees, its participants to earn
commissions, and its participating market makers to
earn "mark-ups". The CEBEs can then be sold to anybody
because they are commingled with real shares and until
all real shares have been removed from the DTCC via
share registration programs any sale is PRESUMED to be
that of a real share.

The actual counterfeiting "printing press" is the
Automated Stock Borrow Program, which converts a
nonexistent entity into a "CEBE". Once within the
system, CEBEs can be recognized EITHER as a "Failed
delivery" OR as a "Loan" cleverly made with the NSCC
acting in the intermediary role as both the "nominal"
lender and the "nominal" borrower. The "actual"
lending b/d is handsomely compensated for loaning out
his client's shares to "the cause" by receiving the
marked to market value of the securities being loaned,
which is preferable to a stock certificate or
electronic entry gathering dust.

The SEC's allowing market makers to sell entities that
don't exist to micro cap investors makes no legal
sense at all. The intention to inject liquidity is
honorable but allowing people to do it without
borrowing genuine "shares/package of rights" is
tantamount to endorsing counterfeiting especially when
every single shareholder of a company is victimized by
the sale of nonexistent entities masquerading as
shares. A public corporation cannot be forced by the
SEC to issue new shares or to amend its Articles of
Incorporation to allow the authorization of new shares
just to keep the market makers happy.

The undermining effect that naked short selling has
upon the '33 and '34 Acts, Corporate Articles of
Incorporation and By-laws, and the Corporate Statutes
of the various states domiciling these corporations is
incredible and quite frankly the SEC does not have the
mandate to allow policies that break these laws or all
of the common laws that are being broken. Think for a
moment, what is the "par value" of the entities being
sold? How should an auditor account for them on the
"Shareholder Equity" portion of a balance sheet? Why
don't they show up on a prospectus? Should issuers
file an 8-K warning investors that their share
structure is a total mess-not as a result of corporate
malfeasance but as a result of securities industry
fraud and regulator indifference? Should auditors be
sued for not detecting these massive imbalances or not
addressing them in a footnote to audited financials?

We warn you not to be fooled by untrue allegation that
the Automated Stock Borrow Program at the DTCC has
anything to do with a legitimate "borrow". In
legitimate short selling, the "borrow" or the making
of an affirmative determination in writing of the
"borrowability" of the shares/"packages of rights"
comes first and later comes the sale of the borrowed
securities. In the fraud known as "naked short
selling", the sale of a nonexistent entity is done
first and then an illegitimate "borrow" is done to
quickly convert the nonexistent entity sold into a
"counterfeit electronic book entry" suitable for
hiding at the DTCC by commingling it with real shares
in an anonymous pooling format.

This illegitimate "borrow" is not even a distant
cousin of a legitimate borrow used in legal short
selling. Not only did it come out of sequence but at
the DTCC the same "share" can be loaned out in many
different directions at the same time because it is
not sequestered off to the side in a separate account,
as it should be, until the loan is repaid. That's why
these naked short positions can become 300 or 400% the
size of the issued and outstanding number of shares.
Please note also that these nonexistent shares are not
"depositary receipts" because there is no real
certificate in existence justifying its validity. Nor
are these nonexistent entities derivative instruments.
Financial derivative instruments are "derived" from a
valid security that really exists. They "resemble" a
legitimate share just enough to allow an investor to
lay down good money for it.

Please note also the nature of those "real" shares
being loaned out in various different directions at
the same time. U.S. securities laws dictate that
shares can only be loaned out with the permission of
the owner, as is typically contained in a margin
agreement. Retirement plan accounts subject to the
1974 ERISA Act, fully paid for securities in cash
accounts, and "excess" margin securities are expressly
forbidden from being loaned out. The shares of the
companies usually falling victim to these "bear raids"
are typically non-marginable securities trading under
$1 yet the supply of shares being loaned out seems to
be unlimited and shareholders holding these shares in
qualified retirement plans can't even get delivery of
demanded certificates. Are the broker/dealers hiding
behind the notion that since all of the shares in
"street form" are technically held in the name of
"CEDE and Co., which is the nominee of the DTCC, then
TECHNICALLY the DTCC participants are the
"nominal/legal" owners and they can do anything they
want with their possession? What happened to the
parameters of Rule 15c3-3 forbidding the loaning out
of fully paid for securities and excess margin
securities?

In reviewing some of the comments submitted to the
SEC, we notice that some proponents of naked short
selling raise the issue that without naked short
selling "pump and dumpers" will have a field day. This
argument has been used for decades to justify
fraudulent naked short selling but it lacks in
substance when a deeper analysis of naked short
selling is done.

The SEC has done a decent job in reigning in "pump and
dumpers" that run the price per share of a stock
upwards on inaccurate press releases and sell their
own shares into the run up. The recent study by
Aggarwal and Wu reviewed 142 SEC Litigation Releases
between 1990 and 2001. The overwhelming majority of
these cases targeted frauds wherein the perpetrators
were attempting to increase the share price rather
than decrease the share price of an issuer i.e. the
classical "pump and dump". LESS THAN 1% OF THE CASES
THE SEC TOOK ON HAD TO DO WITH FRAUDSTERS ATTEMPTING
TO DECREASE THE SHARE PRICE OF A SECURITY. Why are the
statistics so skewed? Should it not be closer to
50-50? The answer is that naked short selling amongst
DTCC participants and their co-conspirators is a
systemic issue that is out of control. Everybody knows
about it but nobody wants to address a "hot button"
issue like this. Nobody wants to open up Pandora's
box, thus legitimate development stage companies on
the OTCBB and Pink Sheets, as well as the investments
made therein, will just have to assume the role of
"collateral damage" in order to obfuscate the identity
of the bad apples in the barrel.

The irrefutable stereotype on Wall Street is that ALL
companies on the OTCBB and Pink Sheets are BY
DEFINITION "scams" and not worthy of the attention of
the regulators. Naked short selling fraudsters are
almost looked upon as deputy sheriffs in the fight
against securities fraud. That is until they
misdiagnose a legitimate company as a "scam". After
this is done and the company bankrupted, the only
thing left to do is say "OOPS!"

Keep in mind that the SEC, the NASD, and the DTCC are
all SROs or "Self Regulatory Organizations". They all
wear "badges". One of the tenets of any "Profession",
whether it be medicine, the law, or the securities
industry, is the right to self-govern. It's tough for
any SRO to take an introspective look at what might
end up revealing malfeasance amongst the
"deputy/participants" at the DTCC, especially if the
malfeasance is pandemic.

Pump and dump frauds are analogous to the roof tiles
blowing off of the "Wall Street house" as mentioned
earlier. Using the fraudulent sale of nonexistent
entities to reign in "pump and dump" frauds is
ludicrous. You don't fight a fraud with a fraud.
Selling nonexistent "shares/packages of rights" with
no intent to cover is 100% illegal.

This goes well above and beyond securities laws and
the creation of "an artifice to defraud". It is a form
of counterfeiting as well as a securities fraud. Again
the term "naked short selling" is a total misnomer.
The crime is much more heinous than that title
reveals. Crooks have actually "hijacked" probably
trillions of dollars from micro cap investors via the
selling of entities that don't exist to them. The
"printing press" of the counterfeiters is provided by
the "Automated Stock Borrow Program" or "Lending pool"
at the DTCC created subsequent to Addendum "C" of the
Rules and Regulations of the NSCC. The scale of the 2
crimes must also be considered. Naked short selling is
a systemic problem with damages probably well up into
the trillions of dollars. Remember there is currently
$127 trillion sitting at the DTCC. Does it seem out of
line to estimate that these frauds involve 1% of the
assets of the DTCC?

Don't get us wrong, the pump and dump fraud carried
out by crooked insiders is a terrible securities fraud
with plenty of victims. The SEC has done a credible
job in rounding up these hoodlums but the punishment
doled out is so weak that there is no deterrent
effect. Pump and dumpers need to do jail time in a
cell right next door to the bank robber's cell-and to
the naked short seller's cell. As far as the relative
scale goes between these two crimes, it is not wise to
use nuclear weapons against pickpockets. The 10b-5
rules, the Rule 144 stipulations, as well as the
enhanced Sarbanes-Oxley parameters will address the
pump and dumpers quite well.

The "pump and dump" fraud and the "naked short
selling" fraud both involve aberrations in supply and
demand mechanics. In the "pump and dump" fraud the
demand variable is increased via aggressive promotion
and misleading press releases. The magnitude of the
demand increase is muted by investors using common
sense and doing their due diligence. In the "naked
short selling" fraud, the supply variable is grossly
magnified in a limitless and undetected manner and the
demand variable is diminished by the loss in the
credibility of management attendant to Internet basher
activity and a share price in free fall. Unethical
DTCC participants and their co-conspirators have a lot
more "critical mass" than a rogue promoter working
with crooked insiders in a "pump and dump."

Don't forget also that the victims of naked short
selling include a whole lot more than the investors
that lost all of their investment and the bankrupted
companies; the integrity of the entire financial
system as well as the efficacy of the '33 and '34 Acts
that protect it are undermined. Regulation SHO will
also help curb "pump and dump" frauds by not allowing
crooked corporate insiders to sell restricted shares
NOW and let the failed deliveries and loans made to
mask failed deliveries simply stay on the books until
the restriction period is lifted. Naked short selling
totally undermines the purpose and efficacy of the
Rule 144 restriction period. There is no restriction
period if you can just find a crooked b/d, market
maker, and clearing firm to process that sell order
and sit on the failed delivery. Everybody on Wall
Street needs order flow.

The point needs to be emphasized that the only people
in the system that can legally sell "nonexistent
entities" to U.S. investors are "bona fide market
makers" while acting in the capacity of a bona fide
market maker, as allowed by Rule 3370. Bona fide
market makers allow these delivery fails to exist only
for a day or two, as addressed in Addendum "C" to the
rules and regulations of the NSCC, and as you state in
the Notes to Proposed Regulation SHO. They then
promptly go back onto the bid and repurchase these
securities.

"Bona fide market makers" sell into markets
predominated with large buying imbalances WITH THE
SAME ZEAL that they buy into markets with large
selling imbalances. Please don't mistake any of the
activity of the perpetrators of this fraud with "bona
fide market making activity". In the example above,
there was no imbalance of buy orders over sell orders
at the $5 level that needed addressing. They had no
legal right to sell nonexistent entities at the $5
level. Rule 3370 didn't apply. Where were these very
same market makers' buy orders when the stock was
trading at the $4.60 level? They were nowhere to be
found on the bid but instead were selling even more on
the offer. Again, they had no right to sell
nonexistent entities to U.S. investors and place the
investors' money on top of the ever-growing mountain
of money in front of them. Market makers are supposed
to be the "middlemen" used to bring the buyer and
seller together, not market manipulators who destroy
companies and rob legitimate investors of their money.

The typical sequence of events we witness time and
time again goes something like this. A stock is
trading at let's say $5 and a certain group of Wall
Street DTCC participants and their co-conspirators
judge that the $5 level is a bit too generous for this
particular stock. Perhaps they, in their infinite
wisdom, think that the $2 level would be more
appropriate. They then sell, let's say, one million
nonexistent shares at $5 into one million shares of
real buy orders over the course of a month or two.
There wasn't really an imbalance between too many buy
orders and not enough sell orders to address, it was
more that the market makers have a superior visibility
of these buy orders coming in and they can easily beat
a real seller of shares to that buy order. This is no
way, shape, or form bona fide market making.

They now have access to a pile of $5 million, the same
$5 million that investors just paid for what they
thought were legitimate "shares or packages of rights
attached to a public company". As the price per share
tanks, a bona fide market maker would take that $5
million and buy back shares at perhaps between $4.80
and $4.60 and pocket a quick $300,000 profit without
lifting a finger. Abusive market makers don't see it
this way, the $300,000 "free" dollars courtesy of
na´ve investors just doesn't quite make it. This fraud
is way too easy to pull off to settle for a measly
$300,000. They saw how easy it was to sell a million
nonexistent shares and raise $5 million and so they
get greedy and instead of taking money from that pile
of $5 million to buy back shares, they decide to add
to it by selling yet more nonexistent shares on the
way down to maybe $1 or so. Why not, nobody's keeping
score back at the DTCC, all of those "failed
deliveries" are now safely in the "counterfeit
electronic book entries" column hidden amongst the
real shares. Now perhaps they have $10 million in
front of them from the selling of nonexistent shares.

With more of this behavior the $10 million becomes $15
million as the price per share now approaches a penny.
At a penny per share there really are many more buy
orders than sell orders. Their continued selling at a
penny really does start to resemble "bona fide market
making", at least for new buyers anyways. At a penny
per share they might decide to go ahead and cover but
they notice that they're the only seller around. Who's
going to sell shares to them at a penny so that they
can cover? They've been the only seller from perhaps
$1 on down. All of the real investors are so far
"underwater" on their investment that they can't
afford to take that big of a loss. Besides, most of
them don't even follow the stock anymore unless it's
at a year's end and need a capital loss. No new naked
short sellers are dumb enough to start attacking a
stock that just went from $5 to a penny. They'll go
find a different $5 stock to attack.

These market manipulators soon learn that they can't
cover because the second they take their finger off of
the selling trigger, the stock gaps upward and they
haven't even started to buy back shares yet. Since
they can't cover without driving the PPS up violently
they soon learn that all they can do is to continue
leaning on the stock in an attempt to suffocate the
company to death by constantly knocking out any bids
that are posted. This phase of the overall fraud is
where the necessity of Rule 201, the Uniform Bid Rule,
comes into play. Without protection from this constant
"bid banging" these victim companies will have a tough
time fighting off bankruptcy.

What really is frustrating to the corporation
mentioned above is that perhaps recent corporate
developments perhaps have made the $5 share price
level an appropriate valuation but it's too late. With
all of the dilution caused by the "bear raid", any
future earnings are now divided by an inordinate
number of shares to calculate earnings per share and
stocks usually trade at multiples of earnings per
share. Thus the damage incurred is permanent.

The question we would have in regards to the proposed
Regulation SHO is what will be done with the "open
positions" in excess of the Rule 11830 parameters? If
a corporation has 100 million shares issued and
authorized and all held at the DTCC and the DTCC has a
total of 200 million real shares and counterfeit
electronic book entries in house, how will the
proposed Regulation SHO address the 98.5 million share
aggregate "open position" in excess of Rule 11830?
Will the SEC do as the NASD spokesman said and claim
that it's beyond their civil injunctive powers and let
the fraudsters keep that mountain of investors' money
they have in front of them from selling the investors
nonexistent entities while illegally using the
exemption from borrowing before selling entrusted to
bona fide market makers only who, by definition, would
have bought back these sales shortly thereafter and
who by definition sell "shares" into markets
predominated by buy orders with the same zeal that
they buy shares when sell orders predominate.

We might remind the SEC that in order to calculate the
number of shares in "open positions" within the
overall system, they must determine the arithmetical
sum of "open positions" at the DTCC, the Central
Depository for Securities in Canada, in house "open
positions" amongst the 11,000 participants at the DTCC
from "desking" activities, and "in house" open
positions held in offshore broker/dealers especially
non-NASD participants. We must stress that the DTCC
isn't the only place where this game is played.

If the NASD and the SEC choose to ignore these
preexisting "open positions" in excess of the Rule
11830 benchmarks, then those accusing the regulators
of being in complicity with these naked short selling
fraudsters right from the get go will have made their
point. U.S. INVESTORS HAVE BEEN BUYING NONEXISTENT
ENTITIES FROM WALL STREET "PROFESSIONALS" TRYING TO
HIDE BEHIND A RULE 3370 EXEMPTION FROM BORROWING THAT
DOES NOT APPLY SINCE THEY WERE IN NOW WAY, SHAPE, OR
FORM ACTING IN A BONA FIDE MARKET MAKING CAPACITY. THE
1934 SECURITIES EXCHANGE ACT HAS SEVERAL BUY-IN
MANDATES THAT APPLY HERE. THE BANK ROBBERS HAVE BEEN
CAUGHT AND THE PROCEEDS OF THE HEIST HAVE BEEN
LOCATED. PLEASE ENFORCE THE 1934 EXCHANGE ACT YOU WERE
SWORN IN TO UPHOLD NO MATTER HOW INTIMIDATING THE
LARGEST FINANCIAL INSTITUTION ON EARTH, THE DTCC, CAN
BE.

In a recent article in a financial periodical that has
been closely following the Sedona case after the
initial arrest, the author noted that an NASD
Enforcement Staff Member, speaking anonymously,
described forced buy-ins as outside of the SEC's civil
injunctive powers. Other NASD staffers went on to say
that the NASD considers the buy-in rules to be
"contractual obligations" among its member
broker/dealers and not codified law or Federal
Regulation. These NASD staffers went on to say that
the contractual nature of the short rules places
enforcement of short trade settlements outside of the
NASD's purview as well.

Can you see the flight to middle ground occurring? We
have reviewed all of the possible solutions to this
debacle and all roads lead back to the necessity to
first buy-in all of the preexisting "open positions"
greater than the Rule 11830 benchmarks. If one didn't
demand this then the alternative would be to list out
the victim corporations on the Rule 11830 "restricted
lists". THIS LIST WOULD HAVE TO BE MADE PUBLIC IN
ORDER TO WARN PROSPECTIVE INVESTORS THAT THEY ARE
WALKING INTO AN AMBUSH. Investors would then avoid
buying shares of these victim companies like the
plague and the regulators would then, hopefully
unwillingly, be aiding and abetting the naked short
selling fraudsters into bankrupting these victim
corporations. Can you regulators not see that these
naked short selling scams are now so far out of
control due to regulator naivetÚ and neglect that
there is no longer any middle ground to take. This
issue has been conveniently swept under the rug at the
NASD and the SEC for so long that the ceiling fans no
longer turn at either institution. Some regulator or
legislator has to eventually come to the aid of the
victims of these frauds instead of coddling to the
perpetrators of the fraud no matter how politically
powerful they are or how much economic critical mass
they have attained with investors' money. The robbers
have been caught red-handed and the stolen money has
been located. The various sets of buy-in rules in the
1934 Exchange Act are crystal clear. Let's address the
problem and move on and bring some integrity and
investor confidence back to the world's largest
financial markets.

I don't think that we really have to remind you of
this fact but just in case, please be aware that as
Regulation SHO implementation approaches, a lot of the
"open positions" currently at the DTCC are going to
"sprout wings" and fly into the "in-house proprietary
accounts" of the perpetrators of this fraud as well as
to "in house" accounts of the offshore non-NASD
broker/dealers. This will be effected via wash sales
and matched trades just like in all of the "death
spiral" version of naked short selling cases.

For those instances of Canadian and U.S.-based naked
short selling related to the laundering of money to be
used by terrorists and those involving the proceeds of
illicit drug activity, please make these criminals
IMMEDIATELY cover their outstanding naked short
positions BEFORE these funds can be used against the
American people. By terrorist we refer to the type
seen on TV of late, although garden variety naked
short selling is indeed a form of "financial
terrorism". The Canadian version of the "know your
client" rules have been universally ignored for
decades. Canada is the only advanced industrialized
country on earth that STILL doesn't have a national
securities regulator. They have a "patchwork" of 13
provincial and territorial regulators. All you have to
do is set up shop in the Province with the weakest
securities laws concerning your particular securities
fraud of choice and off you go. There is no more
efficient way to launder this "dirty" money than to
post huge amounts of cash to make the usurious
Canadian margin maintenance requirements necessary to
carry gigantic naked short positions of stocks trading
under $1. These people WANT TO put up huge sums of
money, albeit "dirty" money, to maintain margin. In
fact a self-fulfilling prophecy is set up wherein the
more nonexistent shares that they sell necessitates
yet more margin maintenance to be posted and it also
seals the victory in easily bankrupting the company
through the massive dilution involved. Study the cases
going on in Canada currently and see the types of
people working through these 13,000 Canadian naked
short-selling accounts due to the virtual nonexistence
of delivery rules. The mechanics involved in naked
short selling through Canada couldn't possibly provide
for a better money Laundromat.

Since drug consumption and national security issues
are at play here, we feel that the U.S. market makers
and clearing firms acting as conduits in this activity
OWE THE U.S. PEOPLE BIG TIME IN THIS REGARD. WE
UNDERSTAND THAT SOME HONEST U.S. MARKET MAKERS AND
CLEARING FIRMS HAVE BEEN PLAYED LIKE A FIDDLE. THE
DISHONEST ONES ARE, OF COURSE, COMPLICIT WITH THIS
ACTIVITY AND ARE IN COLLUSION WITH THESE CRIMINALS. WE
BELIEVE THAT MANY BASICALLY ETHICAL MARKET MAKERS HAVE
JUST FAILED TO RECOGNIZE THE EXISTENCE OF VICTIMS,
BOTH U.S. CORPORATIONS AND THE INVESTORS THEREIN, IN
THESE HIGHLY COMPETITIVE POST-DECIMALIZATION MARKETS
AS WELL AS THE DELETERIOUS EFFECTS ON HOMELAND
SECURITY AND THE INTEGRITY OF OUR FINANCIAL MARKETS IN
GENERAL.

We feel that the SEC is in a once in a lifetime
position to bolster the intent of the USA Patriot Act.
Please buy in these "open positions" now and you will
be accomplishing a lot more than improving the
integrity of the largest financial system on earth. As
we mentioned earlier, we're fresh out of "middle
ground", it's time to make a stand. The SEC has had a
recent history of being REACTIVE to the States
Attorneys General leading the way on these types of
frauds. Perhaps as it relates to naked short selling
frauds, the SEC can take the lead and act in a more
PROACTIVE manner.

SOLUTIONS TO THE PROBLEM

1) Realize that there is indeed a problem, and then
locate its source. Look at the DTCC records showing
the age and magnitude of outstanding loans made to
hide all of these failed deliveries for companies
trading on the OTC: BB and Pink Sheets. Keep in mind
that these naked short "open positions" are constantly
being "kited" by wash trades and matched orders made
in an effort to "rejuvenate" the age of the "fail".

2) Make the commitment to act quickly so that no more
victim companies go bankrupt while the DTCC
participants try their best to stall the
implementation of Regulation SHO. TIME IS OF THE
ESSENCE!

4) Demand that these excesses above the Rule 11830
parameters be brought into compliance within a given
amount of time via the guaranteed delivery buy-in of
"real" shares from "real" shareholders. The good thing
about guaranteed delivery buy-ins is that the bill
will, as if by magic, land in the lap of the guilty
party or the clearing firm that cleared for the guilty
party. The identification process is an automatic.
This addresses the preexisting naked short positions
prior to Regulation SHO's implementation. ANY INDUSTRY
PLAYER THAT OBJECTS TO THIS SOLUTION IS IN ON THE
SCAM. ASK YOURSELVES, WHY SHOULD THEY CARE IF THEY ARE
NOT IN ON IT? WHY WOULD THEY WANT THE MANIPULATORS TO
GET AWAY WITH THEIR CRIMES? The next job is to pass
Regulation SHO to level up the playing field for
future investors.

5) This solution should not at all be seen as
burdensome to those perpetrating this fraud because it
does not even address the damages done to those
thousands of victimized corporations and their
millions of shareholders which have already gone
bankrupt. There, the crooks have already won.

6) The SEC has to dig deep and do the right thing to
make up for their complacency in the past. If those
DTCC participants that perpetually claim that there is
no such thing as abusive naked short selling are
correct then there will be no buy-ins. Please do not
have the audacity to approach a company whose share
price has just tumbled from $5 to a penny and try to
arbitrate a solution involving the victimized
corporation selling the perpetrators of the crime
large blocks of stock at a penny or two. We don't
think the investors that bought shares at $4.90 will
look upon this too favorably. Keep in mind the immense
amount of money sitting in front of those that sold
these nonexistent entities to these investors because
it matches to a penny the amount of money these
investors have lost on paper or have realized by
selling at a loss.

We thank you for this opportunity to help address this
massive fraud being perpetrated on U.S. micro cap
investors and look forward to working closely with you
on its solution.